Growth data may be revised downwards

SBI research wing says given industrial growth figures available now, FY12 GDP growth may stand at 6%

Contrary to perception, India’s gross domestic product (GDP) growth might not see an upward revision from the 6.2 per cent for 2011-12 after data from the Annual Survey of Industries (ASI) are incorporated, if one goes by the calculations of a research wing of State Bank of India.

Rather, the growth might come down to six per cent, said the latest copy of State Bank Ecowrap, brought out by the bank’s economic research department.

“Based on the ASI numbers, we believe the manufacturing sector growth for FY12 is likely to be revised downwards and, other things remaining unchanged, may drag overall GDP to six per cent from the earlier revised number of 6.2 per cent,” said Soumya Kanti Ghosh, chief economic advisor.

However, the views are not shared by National Statistical Commission Chairman Pronab Sen, also former chief statistician to the government.

State Bank Ecowrap based its calculations on declining investment, hardening interest rates, and deceleration in net value added by the manufacturing sector in 2011-12 year-on-year, as shown in the ASI report released recently.  

ASI data showed the gross capital formation, an indicator of investment in industries, contracted 8.7 per cent in 2011-12 against a high of  23.2 per cent growth in the previous year. And, the rate of decline in capital formation was higher in 2011-12 than in the 2008-09 crisis period, when it fell 0.27 per cent.

The Reserve Bank of India's tight monetary policy to rein in inflation resulted in the highest growth of interest costs incurred by industries, at least in a decade.

The interest paid went up by 37.1 per cent in 2011-12 against 20 per cent a year before. So, in only two years, interest rose a little over 50 per cent.  

Net value added by the manufacturing sector rose 18.7 per cent in 2011-12, down from 19 per cent the previous year.

Ultimately, the revised GDP figures would be based on value addition by the manufacturing sector. ASI covers a larger part of the economy than the Index of Industrial Production (IIP), by incorporating the small- scale sector as well. Hence, it gives a larger picture of the economy.

GDP data initially takes into account the IIP figures and two years later it incorporates ASI figures. The revised figures for 2011-12 would be known towards the end of this month.

Sen said value addition of output by the manufacturing sector was down due to reduction in inventories. The latter are counted in the GDP data when these are produced and not when sold. “At the moment, it does not seem that GDP growth figures for 2011-12 would be revised downwards,” he said.

Inventories are counted in the GDP data when they are produced and not when they are sold.