Mumbai: The government will announce the first quarter gross domestic product (GDP) numbers on Friday, and speculation is running high whether growth will be lower than the 5.3% notched up in the January-March 2012 quarter. What is very interesting is that in the meantime, the government has, rather quietly, revised downwards earlier GDP estimates for fiscal years 2009 and 2010.
Recall that when GDP growth slipped to 5.3% in the January-March 2012 quarter, there was much adverse commentary about it being even lower than growth during the third and fourth quarters of fiscal 2009 (FY09), after the Lehman Brothers crisis. That didn’t reflect too well on the government, because while the lower growth in FY09 was the result of a global crisis, the current slowdown is largely a home-grown one.
Well, growth in the fourth quarter of FY09 has now been revised downwards by the Central Statistics Office (CSO) from the earlier 5.9% to a much lower 3.5%. Gaurav Kapur, a senior economist at Royal Bank of Scotland NV in Mumbai, pointed out the revisions and drew attention to its magnitude. It’s a huge revision and once again calls into question the quality of data on which the GDP estimates are based.
The CSO website says that the new series of the Index of Industrial Production (IIP) has been used for computing the data. But strangely enough, there’s been no revision in the GDP growth for the third quarter of FY09, which remains at 5.8%. The revised IIP data seems to have changed the GDP growth for the fourth quarter of FY09, but not for the third quarter.
As the chart shows, growth for the first quarter of FY10 has also been revised down from 6.3% to 5.7%. That’s not such a big change, though, compared with some of the other revisions. Consider, for instance, the revisions for the first quarter of FY09 from 7.9% to 9.8%, or for the fourth quarter of FY10 from 9.4% to 11.2%.
What was the reason for the big change during the fourth quarter of FY09? Well, they’ve revised down the growth rates in all three sectors—agriculture, industry and services. Growth in industry has been revised down from 0.8% to -3.6%.
When the GDP growth numbers for the first quarter of FY13 are announced on Friday, if it falls below the 5.3% recorded during the previous quarter, as several economists believe it will, even then the growth rate won’t be lower than during the post-Lehman period. As an economist pointed out, we can now say that growth isn’t as bad as in the post-Lehman quarters, at least until the numbers are revised again.
More importantly, when they announce the GDP growth numbers on Friday, where’s the guarantee it won’t be revised later by more than 2 percentage points, just as they did for the fourth quarter of FY09? And if the magnitude of error is so high, what’s the point of taking any decisions based on this kind of data? One can only express one’s sympathies to the Reserve Bank of India (RBI). Simply put, the credibility of the GDP data is at stake.