Govt changes GDP growth target to 7.6%. Economists don

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Govt changes GDP growth target to 7.6%. Economists don't believe it

The Union government's estimates for the Gross Domestic Product (GDP) growth rate for 2015-16 have once again been red-flagged by economists.

The government decided to up the GDP estimate for fiscal year 2015-16 to 7.6%. According to Madan Sabnavis, chief economist, Care Ratings, this is an impossible task.

"If we have to grow 7.6% for the full year, fourth quarter growth should be more than our average growth for the first three quarters at 7.5%. We grew by 12.6% in manufacturing in the third quarter, on the back of festival season, that kind of growth would not be possible in the fourth quarter," Sabnavis said.

Must read: Some good news before the Budget: GDP growth increases to 7.6%

"Moreover, even the agriculture sector is likely to be negative, as we have not seen much sowing of the winter crop."

Surprising growth in manufacturing

In terms of Gross Value Added (GVA), the biggest surprise was that in the manufacturing sector, there was a 12.6% growth in the third quarter, as compared to 1.7% in the same period last year.

The manufacturing sector has shown an unusually high growth of 12.6% in Q3, 2015-16

Shubhada Rao, chief economist, Yes Bank, told Reuters: "The third-quarter data has surprised on the upside, as high frequency indicators such as PMI, some segments in the services sector, and core industrial output (had) pointed to a loss in momentum."

The way of calculating manufacturing growth has faced criticism from various economists since the beginning of the year. While the government wants to show that Indian manufacturing is doing well, in order to attest to the success of the Make in India campaign, the number is difficult to believe, because exports have been nosediving for 13 months.

Exports fell to $22.29 billion, as against $26.15 billion in December 2014.

Ritika Mankar Mukherjee, economist at Ambit Capital, was more vocal in criticising the government's GDP data, saying: "The new GDP series and the information that it is conveying, not just in terms of levels but also in terms of the direction, seems very counter-intuitive."

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However, Saugata Bhattacharya, chief economist of Axis Bank, justified the government's manufacturing data, saying: " The new method of calculating GVA looks at profits more than sales, and early company financial results for Q3 suggests that profits have indeed grown more than in the two previous quarters."

Will a correction follow?

Even the 2nd quarter numbers (July-September 2015) had created a similar controversy, when various economists had questioned the 2% growth in agriculture even though as many as 302 of India's 640 districts were declared drought hit in the period.

In 2011, Rahul Khullar, the then-commerce secretary, said export figures were inflated by $9.4 billion due to misclassification of some items and data-entry errors. A massive correction followed in January 2012, and industrial production growth was revised to 1.1% from 6.8%.

One will have to see if a similar revision is done at a later stage by the government, or if the Indian economy is actually growing at such a robust pace.

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Neeraj Thakur

Neeraj Thakur @neerajthakur2