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Many experts have criticised the new gross domestic product data (GDP) for allegedly cloaking the ground reality. However, the new numbers also show signs for worry on the economy.
These emerge when one analyses data for the third quarter of the current financial year, issued with the advance estimates for 2014-15. For instance, growth in private final consumption expenditure, which signifies demand in the economy. It declined to its lowest level in the six quarters given in the new data, to 3.53 per cent, with a base year of 2011-12 as against the 2004-05 used earlier. The growth was as high as 8.69 per cent in just the previous quarter, of July-September.
Similarly, gross fixed capital formation, a proxy for investment, expanded at the lowest pace of 1.64 per cent in October-December. It was a bit higher at 2.79 per cent the previous quarter and significantly robust at 7.65 per cent in the first quarter of this financial year.
The only thing growing significant among the three main components of GDP at market prices (new GDP) is the government's final consumption expenditure. This rose by 31.7 per cent in the third quarter, from 5.8 per cent in the second one. In the first quarter, in fact, this component declined by 2.03 per cent, year-on-year.
This clearly shows the stress on the fiscal deficit from the rising government expenditure (adjusted for inflation), as well as strains on demand and investment.
ICRA senior economist Aditi Nayar said investments were a concern in the economy due to excess capacity. Demand, whether global or domestic, is an issue, she added. "A bad monsoon has dented 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 there wasn't much to rejoice. However, he added, the gross value added (GVA) figure did not match with recently issued industrial production data or corporate results.
In the new GDP numbers, sectorwise results -- on 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 these can arise even if a product is not there, such as a property tax.
Industrial growth as represented by the Index of Industrial Production (IIP) rose only 0.46 per cent in the third quarter of 2014-15, largely because production contracted 4.2 per cent in October. On the other hand, industrial growth was 3.85 per cent for this quarter in the GDP data.
Nayar said she found the services data a bit unrealistic.
Financial services grew by 15.9 per cent in the third quarter against 13.8 per cent in the second and 11.9 per cent in the first one. Besides, trade and related services rose 7.2 per cent against 8.7 per cent and 9.4 per cent in this period, according to GDP data. She said this seemed slightly on the higher side.
