No surprises

Last week, the committee entrusted by the National Statistical Commission to develop a back series for the new form of calculation of gross domestic product (GDP) and gross value added (GVA) made public its calculations. Since the figures were released, the Union ministry of statistics and programme implementation distanced itself from them, saying they are not yet “approved”. Certainly, it is a fact that under these figures, the average growth rate under the current National Democratic Alliance does not reach the levels achieved under either the first or second terms of the United Progressive Alliance. That said, the broad narrative about structural trends in the Indian economy has not been changed by these figures. According to the back series, GDP growth, calculated at market prices , touched double digits twice – once in 2007-08 and then again in 2010-11. 

The overall trend remains the same: A spurt in growth during the boom of the mid-2000s, followed by a sharp deceleration in 2008-09, the year of the global financial crisis. GDP growth at factor cost went down from 9.3 per cent in 2007-08 to 6.7 per cent in the crisis year. However, there was a swift recovery, pushed by the unprecedented increase in public spending and subsidies in that year. That stimulus helped the economy reach boom-level heights in the first years of the second UPA government, but a combination of over-extension, high oil prices and administrative paralysis following the anti-corruption movement caused a swift fall to 5.4 per cent growth in 2012-13. Recovery then began in 2013-14 and benefitted from the current government’s cautious approach to macroeconomic stability as well as rapidly improving global growth and a sharp fall in oil prices.

 It is worth noting that the back series reveals again that much of the expansion in the 2000s was driven by government action — when GDP growth is higher than growth in GVA. This means that subsidies are increasing more than indirect taxes, and this is evident at several points in the new data. It is worrying, therefore, that there appears to be no major upward momentum since the broad recovery, which began in 2012-13 from the post-stimulus depths. This is in spite of the fact that global growth has largely recovered,  in the past few quarters in particular. Certainly, several indicators, including the Reserve Bank of India’s capacity utilisation survey — which hit a two-year high of 75.2 per cent in the quarter ended March 2018, according to figures released this month — suggest that demand is picking up again. This trend is seen in sectoral sales numbers as well as in the uptick in non-oil imports.

However, this means that macroeconomic stability must be examined more closely as recent gains are now at risk. At $18 billion, the trade deficit was at a 62-month high in July. Many analysts argue that the full-year current account deficit will be at least 2.8 per cent of GDP, which is in dangerous territory at a time when global capital has turned bearish on emerging markets. For comparison, Indonesia’s current account deficit is also around 3 per cent, while South Africa’s is around 5 per cent and Turkey, which started a recent panic about emerging markets, at a whopping 8 per cent. The government will have to examine how to reach the heights of GDP growth scaled by its predecessor without further destabilisation of the macroeconomy.