GDP growth lowered to 6.2% in 2011-12 vs 6.5% estimated earlier

However, it was raised sharply to 9.3% from 8.4% for FY11

The government today revised down growth in the Gross Domestic Product (GDP) to 6.2% for 2011-12 from 6.5% estimated earlier. Growth in the gross capital formation declined sharply to 0.5% in 2011-12 from 15.2% a year earlier, which may cast shadow on the future economic expansion. Besides, domestic savings refused to perk up despite high interest rates as inflation remained high.

At the outset it seems that the low GDP growth of 2011-12 would give a fillip to economic growth for the current financial year, advance data on which will come out in the first week of February. However, it will not, economists said. This is so because GDP (at constant prices exclusive of indirect taxes) rose to 52.43 lakh crore during 2011-12 from Rs 52.02 lakh crore estimated earlier.

In fact, Soumya Kanti Ghosh, chief economist at the Federation of Indian Chambers of Commerce and Industry (FICCI) said if the Reserve Bank of India’s projections of 5.5% of GDP growth for 2012-13 is taken as assumed on earlier base of GDP for 2011-12, the revised base will yield the GDP growth of just 5.1%.

But, even then GDP growth came down in 2011-12 because a year earlier-2010-11--economic expansion was sharply revised upwards by 0.90 percentage points to 9.3% from 8.4% calculated earlier, official figures released by the Ministry of Statistics and Programme Implementation (MoSPI) showed.
This prompted economists to cast doubts on quality of data.

"This is surprising. It casts doubt on quality of data. Earlier, it was WPI (the wholesale price index), IIP (the index of industrial production) and now GDP. The sharp revision by 0.9 percentage points when nothing substantially changed means that quality of data is not as good," CARE Ratings chief economist Madan Sabnavis said. 

It also meant that form policy perspective we were barking up the wrong tree, he said.
For example as things stand now, the economy grew 8.02% a year on an average in the XIth five year plan period (2007-08 to 2011-12) from 7.86% estimated earlier. The 12th plan (2012-13 to 2016-17) looks at average GDP growth a year at 8%, which means lower than XIth plan. Earlier, it was slightly up from the XIth plan.

The matter of comfort is that it would be for the first time after nine% growth for three consecutive years was broken by the global financial crisis of 2008-09 that the economy grew over 9% in 2010-11. The nine% mark is psychological in the sense that often the issue was raised as to when the economy will revert to nine% growth. However, even the new data showed that it was not sustained the very next year.

The surprising thing is that the economy grew sharply in 2010-11 despite the higher base of 8.6% in 2009-10 against 8.4% estimated earlier.
Most economists were puzzled and did not give concluding answers, but MoSPI officials explained that the provisional data on GDP is just an indicator. The first revised data is based on actual numbers, as many figures like annual survey of industries etc comes out later.

Deloitte India senior director Anis Chakravarty said it is a lag between provisional data and revised data which leads to a variation. However, he said in advanced countries data are revised but not so sharply.

Sectorally as well, there was sharp variation in figures and the GDP growth rate was revised down in 2011-12 because the largest component of services sector saw growth plummeting.  In 2011-12—  trade, hotels, transport and communication—grew by just 6.2% in that year against 11.2% estimated earlier. Agriculture and allied sector growth now stood at 3.6% against 2.8% estimated earlier, manufacturing at 2.7% vis-a-vis 2.5%, financing, insurance, real estate and business services by 11.7% against 9.6%.

As growth of gross capital formation in the country declined, its percentage to GDP also came down sharply to 35% in 2011-12 from 36.8% in 2010-11.
Domestic savings rate declined sharper to 30.8% of GDP in 2011-12 from 34% a year earlier.

Ghosh attributed it to high inflation as it led to the people keeping higher cash to maintain a given standard of living. End