“I am puzzled by the new GDP growth
numbers. This is mystifying because these numbers, especially the acceleration,
are at odds with other features of the macro economy. Import of goods declined.
typically growth booms are accompanied by surges in imports not declines…
similarly, real gross capital formation declined”. This was the chief economic
advisor (CEA) Arvind Subramanian in an interview to the Business Standard on
February 3, 2015. Lest you be fooled into believing that the CEA was being
intellectually honest about the state of the current economy, he was actually
talking about the revised GDP number for the year 2013-14, when UPA 2 was in power.
After the new GDP series was rolled out
under the current government, it revealed that India’s GDP growth in 2013-14
was 6.9 per cent compared to the reported 5 per cent, as per the old
methodology. A 6.9 per cent GDP growth in 2013-14 would have meant that India
was the second fastest growing large economy in the world, after China. But the
CEA expressed bewilderment(mystification,हैरानी) at that number because he said this was in dissonance(dispute,मतभेद) with the actual macro-economic reality. He explained meticulously(clearly,बारीकी से) how other economic parameters such as imports, gross
capital formation etc are truer indicators of GDP growth and dismissed the view
that India’s GDP could have grown as fast in 2013-14.
Fast forward to September 2016. India’s
imports have fallen for 20 straight months. In April 2016, India’s imports
touched a six-year low. Exports are still at 2011 levels, down significantly
from the 2013 peak. Industrial production which creates real jobs in the
economy is actually shrinking(smaller,सिकुड़ना). Gross fixed capital formation has fallen. What does the same
CEA have to say this time about the same macro-economic indicators — “It
signals improvement in underlying real economy, holds out hope for the
corporate sector”.
In a poorly disguised attempt at
face-saving, the CEA has waxed eloquent(fluent,सुवक्ता) about how most commentators have misinterpreted the latest GDP
numbers showing 7.1 per cent growth, driven almost entirely by government
spending (IE, September 8). He says “Nearly all commentary has focused on
decline in constant price GVA and GDP. But real story lies in nominal
magnitudes”. This is the first time that we are being asked to judge the
economy’s health by nominal GDP and not real GDP, that is GDP adjusted for
inflation. In a hair-splitting effort, he argues we should focus on nominal
growth, then argues that the nominal growth should not be assumed to be solely
due to increase in prices but also an increase in quantity but does not explain
if that was the case, then why not just use real growth directly.
Instead, he makes a convoluted(complex,जटिल) point about corporate revenues growing faster than interest
costs which could boost the currently anemic(weak,कमज़ोर) credit growth, going forward. He then lays out a string of
conditions — if monsoons boost agriculture growth, if falling exports have
bottomed out, if the construction sector can perk up due to “reforms” — then we
can be cautiously optimistic about GDP growth.
Technical mumbo-jumbo and caveats(warning,चेतावनी) aside, he essentially surmises(guess,अनुमान) that we should be ecstatic(happy,खुश) that nominal GDP growth is now in double digits. One really had
to scrape the bottom of the barrel if one had to go back to the basics of
nominal and real GDP growth and take solace(relief,सांत्वना) in a nominal double-digit growth, albeit with cute quotes about
“nominal being real” and “real being nominal”, this time.
All this hiding behind economic theory
misses the simple point — using exactly the same yardstick that the same CEA
applied in passing judgment about India’s 2013-14 GDP growth calculated under
the same methodology. India’s current state of the economy is in utter(absolute,निरा) disarray(disorder,अव्यवस्था). While we all endorse the Bernard Shaw
quip that “if all economists were laid end to end, they would never reach a
conclusion”, this one is about the same economist in the same position reading
the same set of numbers but taking two diametrically opposite views. If the CEA
had a well-argued position on his reservations about India’s 2013-14 GDP
growth, then how can he be optimistic about the state of the current economy
using exactly the same macro-economic parameters?
We have been repeatedly witness to this
dangerous trait of the current government and its inhabitants becoming
delusional with their own rhetoric(oratory,वाक्पटुता). We saw that with the government’s claim of savings of Rs
15,000 crore in the LPG subsidy scheme due to Aadhaar based Direct Benefits
Transfer (DBT), which, again, the CEA endorsed healthily through similar
articles in the English press. It turned out, as the CAG pointed out last
month, that a meagre Rs 1,764 crore (approximately 10 per cent) of the subsidy
savings was due to DBT and the remaining 90 per cent of the savings was due to
the fall in global oil prices. The government and its CEA were simply
disingenuous(dishonest,बेईमान)
and resorted to such misleading claims to falsely justify their decision to
table the Aadhaar bill as a money bill and pummel it through Parliament. The
current claims of the CEA about the health of the economy are similarly
misleading.
I have known Arvind Subramanian to be a
fine and fearless economist for almost three decades. I have myself tried in
the past to lure(entice,लुभाना)
him back but the timing was not ripe for him. He has never been an apologist
for anything dubious(doubtful,संदिग्थ).
My piece of unsolicited(unasked,अनचाही) advice to him: Spin is a powerful tool in both cricket and
politics but not in economics. Leave it to those who have made a brilliant
career out of it — such as his senior minister.
courtesy:indian express
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