Chief Stastician TCA Anant: Would not overplay the slowdown concerns merely on a one quarter figure

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After releasing new economic data showing that India’s GDP growth slowed down sharply in January-March this year to 6.1% and to a three-year-low of 7.1% overall in 2016-17, TCA Anant, Chief Statistician of India and Secretary, Ministry of Statistics and Programme Implementation, spoke to Sanjiv Shankaran and Nalin Mehta on  slowdown concerns, the impact of demonetisation and employment numbers:

Looking at last year’s GDP, what would the points of concern be?

It is a good idea for purposes of policy to not react to short-term trends. The idea is to build policy from underlying long-term trends. The present release highlights a long-term trend which policy is addressing: the fact that capital formation rates are low. There is a need to address this trend as it is not a one quarter thing. For two and a half years capital formation rates have gone below 30% (in proportion to GDP).  This is certainly amenable to long-term policy. Government from its side has addressed this issue by addressing issues related to infrastructure investment. It is these types of systemic issues which are more important to analyse.

Inflation adjusted, or real GDP, declined while nominal GDP increased. How does one reconcile these divergences?

The difference between the two is the movement of the price indicator. What you would notice is the wholesale price index (WPI) over the last three years had registered a sharp fall due to a fall in international commodity prices. Subsequent to that, these prices started rising. These show up in GDP as well. The difference between nominal and real, or constant prices, is essentially price behaviour. If commodity prices show up in a certain way that will also show up in value added figures.

It is a good idea to look at both nominal and constant price GDP. Last year we had high real GDP growth but slower nominal GDP growth. Current prices or nominal GDP is extremely important because you earn and spend in current prices. The correct way is to look at both pictures together. Merely to tell a story from one side is misleading. To say the economy is doing well or poorly from the constant price story is misleading.

There is a slowdown but it is a systemic thing and more apparent in constant prices. In part, this slowdown in constant prices is an artifact driven by the price movement. A sharp rise in GDP the previous year and the current slowdown is driven by price dynamics. My reading of both taken together is that the economy is growing quite rapidly. It is not as fast as we would have liked it to be but I would not overplay the slowdown concerns merely on a one quarter figure. If this persists, it would be a different matter.

 What was the impact of demonetisation on GDP estimates for the last quarter of 2016-17?

That is a question very difficult to answer at the best of times. As a statistician, one looks at trends in data to disentangle the underlying process prior to a policy’s introduction and after its introduction. In order to be able to tell you in a statistically robust manner that this has been the consequence of the change, he needs a large amount of data after the change and data prior to the change to do proper comparisons. This is not a straightforward exercise and nor is it, in purely discussion terms, an exercise easy to do.

My judgment is that most people who are trying to make sense out of the statistical exercise based on two numbers are simply doing post-hoc statements and are ignoring the difference between to what extent they are caused by long-term trends and to what extent they are caused by immediate policy.

 Wasn’t demonetisation one of the factors influencing GDP?

Of course, it is. But to estimate how much you can attribute to that particular policy you should be willing to take the effort to separate the consequences of all other factors which have not changed.

Which are other factors which influenced GDP?

The commodity price story is one.

 Do you see employment numbers changing?

We have limited time series data on employment. Most of these are from administrative sources. My personal reading is that we can’t make a case of a significant slowdown in employment growth. There are certain long-run patterns taking place in employment growth. I have not seen anything which posits differently from that story. It appears that there is a certain degree of structural stability in employment.

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