India -Credibility of growth data in doubt

The Reserve Bank of India (RBI) has once again said the GDP growth of 7.3 per cent in 2014-15 doesn’t square with other discrete datasets and raises questions about the methodology that underpins national account statistics.

In its Financial Stability Report released today, the RBI said: “Economic growth in India is estimated to have improved to 7.3 per cent during 2014-15 as per the recent revisions in the National Account Statistics (base 2011-12). However, notwithstanding this improvement, higher growth seems at odds with low

credit growth, relatively lower flow of resources to the commercial sector, low capacity utilisation, subdued growth in the index of industrial production and muted corporate performance, among others.”

One big area of concern was the sharp decline in credit growth, which slowed to 9.7 per cent from 10 per cent between September 2014 and March 2015. During the same period, deposits growth dipped to 10.7 per cent from 12.9 per cent.

While retail credit growth was robust at 18.3 per cent in March 2015, credit flow to non-bank financial institutions, the agriculture sector and micro and small enterprises showed a significant decline, the report said. Export credit had also recorded a negative growth of 5.6 per cent.

The report noted that there has been a significant improvement in the macroeconomic environment and that going forward, economic performance was expected to improve.

“Managing expectations continues to be a challenge for policy makers as the recovery in business sentiment has not yet taken firm roots,” it added.

The report said price pressures arising from possible sub-normal monsoon remained a significant risk to food and headline inflation.

There were also serious concerns over falling profit margins and decreasing debt repayment capabilities of the corporate sector.

While foreign portfolio flows to India have been strong during the past year, unexpected changes in monetary policy stances in advanced economies may lead to a slowdown or a reversal of such flows with implications for segments of financial markets, the report said while adding that India was better prepared to deal with the volatility as compared with earlier episodes.

This is not the first time that the RBI has carped about the robust growth figures put out by the government’s statisticians.

In his monetary policy review in April, RBI governor Raghuram Rajan had said: “While the national accounts statistics seem to suggest that consumption demand for services is robust relative to the demand for goods, and purchasing managers perceive activity expanding on new orders, various coincident indicators of services sector activity including railway and port traffic, domestic and international passenger traffic, international freight traffic, tourist arrivals, motorcycle and tractor sales as well as bank credit and deposit growth remain subdued.”

Back in February, the Central Statistical Organisation had estimated GDP growth in the third quarter of 2014-15 (October – December) at 7.5 per cent, prompting the government to crow about the fact that the pace of growth in the Indian economy had overtaken China’s.

Last month, the third quarter estimate was drastically pruned to 6.6 per cent – which made that claim sound hollow. It also raised doubts about whether the fourth quarter estimate of 7.5 per cent and full year growth of 7.3 per cent would need to be revised later this year.