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The ministry of statistics has rebutted the central bank's questions over a new method for estimating economic growth that shows it in a flattering light.
The Reserve Bank of India (RBI) was not convinced by explanations offered by a Central Statistical Organisation team that visited its office in Mumbai on why the new gross domestic product looked much healthier than other economic indicators. The statistics ministry eventually issued a detailed rebuttal on every question raised by RBI.
The GDP growth rate was revised to 5.1 per cent for 2012-13 under a new data series with 2011-12 as the base year from 4.5 per cent when the base year used was 2004-05. The growth rate for 2013-14 was likewise raised to 6.9 per cent from 4.7 per cent. Advance estimates put GDP growth at 7.4 per cent for 2014-15.
Besides changes in the base year, the methodology and sourcing of data have been altered.
The RBI questioned the high growth rate in "financial, real estate and professional services" in 2014-15. By the new series, the segment grew 13.7 per cent in 2014-15, in sharp contrast to sluggish growth in bank credit.
In its reply, the ministry said growth in the sector was driven by "real estate, ownership dwelling and other professional services". While financial services grew 7.2 per cent in 2014-15, the other category grew 16.5 per cent.
Growth in the real estate sector, the ministry added, was largely on account of a 34.2 per cent growth in value added, at current prices, in corporate real estate activities. This figure was derived from the results of company finance studies by the RBI and corroborated by the sales growth data of real estate companies taken from the BSE, the ministry pointed out.
The ministry also said at current prices, financial services actually decelerated in 2014-15 to 10.9 per cent growth from 11.5 per cent in the previous year. Credit and deposit growth in December 2014 were 10.5 per cent and 11.5 per cent, respectively, against 13.9 per cent and 14.1 per cent in 2013-14.
But at constant prices, the gross value added is higher in 2014-15 than in 2013-14 because of a lower deflator, in this case the wholesale price index, used in 2014-15.
The RBI also questioned the change in direction of growth of significant components of the GDP. It said growth in gross fixed capital formation, an indicator for investment, in the old series was 0.8 per cent for 2012-13, which turned into a 0.3 per cent decline in the new one. This component had declined 0.1 per cent in 2013-14 in the old series, but the new series put it at growth of three per cent.
On this, the ministry said, "In the 2011-12 series, norms used for compiling commodity flow approach estimates of construction asset have been revised on the basis of the study done by CBRI Roorkee." In the old series, estimates were based on norms some of which were unchanged since 1999-2000.
Further, estimates of construction and machinery assets for 2013-14 in the old series "were not based on actual data but on certain indicators like growth in cement production, steel consumption, IIP capital goods and imports of capital goods."
The other issue flagged by the RBI is differences in "government final consumption expenditure", data for which is less likely to change much.
This component of the GDP was calculated as Rs 9.87 lakh crore for 2011-12 in the new series, 3.8 per cent lower than the Rs 10.25 lakh crore in the old series. The difference was 8.1 per cent for 2012-13 and 4.8 per cent for 2013-14.
The ministry suggested several reasons for the divergence. Estimates of local bodies were based on a small sample of large bodies in the old series and extrapolating their results led to overestimation. The new series has a larger sample of small and large local bodies, improving accuracy as the extrapolation is less.
Also, accounts of only seven major central autonomous institutions were analysed in the old series, against 82 in the new one. These bodies cover almost 60 per cent of all grants given to central autonomous institutions. Here too, the extent of extrapolation is lower and the estimates more accurate.
DIFFERENT BALL GAME
RBI's query: Financial services, real estate, ownership of dwelling & professional services grew 13.7% in FY15 (advance estimates), against 7.9% in the previous year, at a time when growth in bank credit was sluggish
MoSPI's response: It was largely due to growth in real estate, ownership of dwelling and professional services category. It rose 16.5% in FY15, against 8.5% in the previous year. Financial services rose 7.2%, against 6.4%, mainly due to lower price deflators in FY15 against the previous year. In nominal terms, financial services rose 10.9% in FY15, against 11.5% in FY14
RBI's query: The new series changed direction of growth in some components: Growth in gross fixed capital formation was changed from 0.8% for FY13 in the old series to a fall of 0.3% under the new series. For FY14, there was 3% growth, against a fall of 0.1%
MoSPI's response: In new series, norms used to compile commodity flow approach estimates of construction assets have been revised. Also, estimates of construction and machinery assets for FY14 in the old series weren't based on actual data but indicators such as growth in cement production, steel consumption, IIP capital goods and import of capital goods
RBI's query: Government final consumption expenditure (GFCE) was changed in the new series. GFCE was 3.8% lower in the new series for FY12, 8.1% lower for FY13 and 4.8% lower for FY14
MoSPI's response: Estimates of local bodies were based on a small sample in the previous series, which mainly included large bodies. Extrapolating their results led to significant overestimation for the category. Accounts of only seven major central autonomous institutions were analysed in the old series. In the FY12 series, accounts for 27 autonomous institutions engaged in R&D and 55 in other activities have been assessed
