GDP – Gross Domestic Product India Q4 and 2016-17
GDP or a Joke?
Today evening the GDP figures for the 4th quarter between Jan’17 and March’17 and the Annual GDP for 2016-17 fiscal were released. The annual GDP grew by 7.1% and the Q4 GDP grew by 6.1%. Let me take you behind the numbers and show you the real picture of these numbers.
The GDP figures that were out this quarter were after the revised IIP and WPI figures after the base year of WPI was changed from 2004-05 to 2010-11. That led to upward revision of IIP that will lead to upward revision of GDP. Accordingly, the GDP figures were revised and the 2015-16 GDP was revised upward from 7.9% to 8.0%. The three quarters GDP declared before was also revised as follows
Q1 GDP was revised from 7.2% to 7.9%
Q2 GDP was revised from 7.4% to 7.5%
Q3 GDP remained constant at 7%
Q4 GDP came at 6.1%.
So, the average GDP for 4 quarters comes at 7.1% and if we take the old unrevised GDP’s the growth is just 6.9%. The second factor I want to talk about is the concept of GVA. Many countries have now switched over to measuring GVA instead of GDP. GVA is when you minus taxes from GDP. Since taxes are not an asset to be added, many countries subtract taxes from GDP and give GVA. Since for many countries the tax rates are low there won’t be much difference between GVA and GDP. But India is different story!
When GDP for FY’17 came at 7.1% the GVA was actually 6.6%.
The Q4 GDP for FY’17 was 6.1% but the GVA is actually just 5.6%.
That means in real terms we just grew at 5.6% in terms of value of goods and services but every newspaper and TV channel will show 7.1% growth which is the revised annual GDP growth. This 7.1% itself is lesser than 7.5% predicted by rating agency Moody’s. There is a huge gap in GVA and GDP because of the higher taxes paid during demonetization period. That says it all.
Another reason why I call this GDP a joke because!
Look at the three components of GVA, i.e. PFCE, GFCE and GFCF. PFCE is Private Final Consumption expenditure which is the money spent by you and me for various activities of ours like buying a phone, going for a salon or spa or dining at a restaurant. That was 55.8% of the total GDP compared to 55.0% seen a year ago. This is just about okay. But look at GFCE, that is Govt. Final consumption Expenditure. This is the money spent by Govt on various activities of its. That has gone up to 11.0% from 9.8%.
This huge increase in Govt spending led to artificial growth in GDP. You can see this clearly when you see GFCF that is Gross Fixed Capital Formation. This is the amount of new factories, machinery and other fixed capital we have created. It has actually dropped to 29.5% from 30.9% seen the previous year. So, the Fixed capital formation percentage has actually come down when the Govt expenditure percentage has gone up. Thus, the picture is clear in front of you.
Fourth reason for my disappointment is the growth in the different sectors. Public Administration and defence which is Govt spending has grown at 11.3% the highest growth. Last year same quarter it was just 6.9%. Another factor that saved us was Agriculture which grew at 4.9% vs 0.7% last year. This is because of good rains and bumper crops. Worst hit is construction which slowed down to 1.7% from 5% and Finance and real estate which halved to 5.7% from 10.8%. These are worrying signs and Govt needs to address them on an urgent basis. In spite of all this India has not kept its Number one position. In fact last quarter it lost its first position to Bangladesh and now from 2nd it dropped to 5th position.
Yes, India is now the 5th fastest growing economy in the World, not first.
Who are the other four then? Take a look
Govt. window dresses the figures and present a rosy picture, will the reality change? Answer is No. Banks are bleeding, Manufacturing has slowed down and services sector is in serious problems. Nobody can challenge these figures but these figures were carefully planned and achieved. It’s like that student who scored 70% not by studying and attending college but just reading a guide. We all know how precarious the future of that student is. India is also in a similar state. We need to show some real growth and that will come when private consumption increases, Fixed capital formation grows and Govt spending stabilizes.
How to do that?
Golden opportunity is the monetary policy coming on 7th June. Create an environment for growth by cutting the rates and making the loans cheaper. That will help banks. Make RBI more powerful so that they can tackle the NPA problems of banks directly. Have the GST rolled out and stick to the tax rates fixed. Then results will follow soon. India is sitting on a bubble of Modi and his salesmanship. When the product is not delivering even the best salesman fails. Hope Modi realises this and stop making a joke of the numbers!!
#India #GDP #Quarter4 #GrowthNumbers #Modi