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Even new series of GDP numbers show worries for economy

Investments, demand refuse to look up even in the new set of numbers

Indivjal Dhasmana  |  New Delhi 

India's GDP
Image via Shutterstock

Many experts have criticised new gross domestic product data (GDP) for not corroborating to the ground reality, but the new numbers themselves showed signs of worries for the Indian economy.

These concerns emerge when one analyses GDP data for the third quarter of the current financial year, which was released along with advance estimates for 2014-15.

Take for instance, growth in private final consumption expenditure, which signifies demand in the economy. It declined to its lowest level of 3.53% in the third quarter of 2014-15, out of six quarters given in the new GDP data, with the base year of 2011-12, against 20104-05 used earlier.

The growth was as high as 8.69% in just the previous quarter--July-September, 2014-15.

Similarly, gross fixed capital formation, a proxy for investment, expanded at the lowest pace of 1.64% in October-December quarter of 2014-15. It was bit higher at 2.79% in the previous quarter and significantly robust at 7.65% in the first quarter of the current financial year.

The only thing growing out of three main components of GDP at market prices (new GDP) is government final consumption expenditure which rose by 31.72% in the third quarter, from just 5.80% in the second quarter. In the first quarter, in fact, this component declined by 2.03% year-on-year.

This clearly showed the stress on fiscal deficit that may arise from the rising government expenditure (adjusted for inflation), as well as strains on demand and investment in the economy.

ICRA senior economist Aditi Nayar said investments are a concern in the economy due to excess capacity. Demand, whether global or domestic, is an issue, she added.

"Bad monsoon has dented the rural demand," she said.

CARE Ratings chief economist Madan Sabnavis said falling growth in capital formation in fixed plant and machinery as well as demand in the economy and rising government expenditure showed that there is not much to rejoice.

However, he said gross value added (GVA) does not match with the industrial production data that recently came or corporate results.

In the new GDP numbers, sector-wise results--agriculture, industry and services--could only be found at GVA at basic prices. This is different from GDP at market prices because GVA at basic prices do not include indirect product taxes (net of subsidies), but incorporate indirect production taxes (net of subsidies). Production taxes are different from product taxes as they can arise even if product is not there such as property tax.

Industrial growth as represented by the Index of Industrial Production (IIP) rose only 0.46% in the third quarter of 2014-15, largely because the production contracted 4.2% in October.

On the other hand, industrial growth stood at 3.85% for the third quarter in the GDP data.

Nayar, on the other hand, pointed fingers at services data, which she says she found a bit unrealistic.

Financial services grew by 15.9% in the third quarter against 13.8% in the second and 11.9% in the first quarter of 2014-15. Besides, trade and related services rose 7.2% against 8.7% and 9.4 per cent in this period, according to GDP data.

Nayar said even services data related to trade and related segments seem to be slightly on higher side.

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First Published: Tue, February 17 2015. 10:22 IST