Sunday, December 05, 2021

The economy waits for better news

By EMN Updated: Feb 17, 2014 10:13 pm

C.R.L. Narasimhan

[dropcap]T[/dropcap]he Central Statistics Office (CSO) released the advance estimates of national income for 2013-14. The economy is slated to grow by 4.9 per cent during the current year. A detailed analysis of growth trends in different sectors —agriculture, industry and services — has been made to support the overall GDP growth estimate.
The purpose of the advance estimate is to give the Finance Minister some insight into the current state of the economy and, therefore, help in the Union Budget formulation. This year, of course, there will not be a regular budget, but only a vote on account on February 17.The performance of the economy, however, has a special significance in an election year. Much before the formal announcement of elections, it is becoming clear that economic matters will matter most in the voters’ calculations.
The BJP, bidding strongly to head a new government, has been critical of the UPA II’s handling of the economy.
There will be arguments and counter arguments on the implications of the latest CSO’s estimate. However, there are a few incontrovertible points about the data itself.
At a 4.9 per cent rate, the economy would be posting a below 5 per cent growth for the second year in a row. In 2012-13, the economy was first projected to grow by 5 per cent, but it was revised downwards to 4.5 per cent. (The CSO lowered the estimate exactly a week before it released the advance estimate for 2013-14). Yet, such a growth rate — the lowest in ten years — has not caused the degree of consternation that was to be expected from the ruling coalition.
Positive in one way
On the other hand, the low growth rate projection for last year was seen to be positive in one way. The interpretation is that having touched a low of 4.5 per cent, the economy has ‘picked up’ in the next year (according to the advance estimate) to 4.9 per cent.
Never mind that Finance Minister P. Chidambaram and many others in the government were hoping for the growth rate to be higher — in the vicinity of 5.5 per cent or so. Even after the data was released, Mr. Chidambaram has been pinning hopes on revisions to the advance estimate to take the growth rate to above 5 per cent.
Evidently, even a small mark up — whether in the original estimate or in the subsequent revisions — matters a lot in an election year.
Another optimistic interpretation of the growth data is as follows.
In the first half of 2013-14, the economy grew by just 4.6 per cent. Since, according to the advance estimate, the whole year’s growth has come in at 4.9 per cent, the second quarter (whose data is yet to be released) ought to have grown by above 5 per cent.
In other words, there has been a year-on-year acceleration — 4.5 per cent for 2012-13 (revised estimate), moving up to 4.9 (current year advance estimate).The momentum has continued into the current year, although it has not delivered the GDP growth rate that the government was hoping for.
Growth averaged
Yet, an 8 per cent annual growth, which many ministers in the government consider to be the barest minimum for the country at this juncture, may prove elusive at least over the next few years. This is a pity.
Over the past four years (up to 2012-13), economic growth averaged 7.13 per cent, and if the advance estimate for 2013-14 is factored, the average comes down to 6.72 per cent.
These by themselves are respectable, but the averages hide the fact that the growth trajectory has been downwards recently. There is nothing from the latest data to indicate a robust recovery. Nor is there a consensus that the economy has bottomed out — at 4.5 per cent, the growth for last year, and can only move up.
The vote on account on Monday will surely attempt a brighter picture of the economy than what is apparent. As we move further towards elections, politics, rather than economics, will guide the discourse on GDP growth and much else.

By EMN Updated: Feb 17, 2014 10:13:26 pm