Making Sense Of India's Growth Numbers

The latest national accounts numbers put growth figures at 7.4% on a yoy basis for the second quarter of 2015-16. Since the change in base of India's national accounts figures to 2011-12, the sharply higher growth data has baffled economy watchers.

Not just are the numbers significantly higher than those suggested by the previous base calculations of 2004-05, but the unavailability of historical data on the latest base make it challenging, if not impossible, to contextualise the numbers. At a time when corporate results are poor, industry growth is still quite limited, credit growth is actually more subdued than last year and foreign merchandise trade has been consistently shrinking for much of the past one year, it is particularly difficult to make sense of the data and figure out where we stand in the business cycle today.

So what is a way around this?

A long term average growth rate for India, measured as the 10 year cycle of the 2000s, which represents the whole business cycle starting from the recession in the early 2000s to a recovery and a booming economy by the mid-2000s followed by a peaking off in line with the global economic cycle, is at about 7.2 per cent as per the old series (2004-05). 

For the 10 quarters, for which we have overlapping data for both series (starting with the first quarter of 2012-13 and going up to the second quarter of 2014-15), there is exactly 1 quarter where growth under the new series is below that under the old series. On an average, the growth differential is 1.4 percentage points and more often than not, growth is at least 0.5 percentage points higher under the new series. 

Therefore, if average growth was at 7.2 per cent under the old series, it should be at least around 7.7 per cent under the new series, if not higher. The latest growth number of 7.4 per cent therefore suggests continued recessionary conditions even under the new series - which, is consistent with the weak trends in other indicators we observe in the economy. In fact, India has seen only 1 quarter of over 7.7 per cent economic growth since the initiation of the new series. 

Upshot: Even though the method gives only a crude indication of the comparative growth between the two series, it clearly indicates what economy watchers have long suspected - the recession isn't over yet. Growth might be getting better, which is a positive, but we are still far from booming.

The article originally appeared in Business World online. 

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