ET BureauTaking output as a principal indicator of activity is incorrect, says Chief Statistician TCA Anant. The method of collecting data is correct and people have to change the way they view the numbers, he tells Kirtika Suneja and Vinay Pandey, in a categorical response to those who have raised doubts about the way GDP is calculated. Edited excerpts:
Despite the Chennai floods in December, manufacturing has grown sharply in the third quarter. What will you say as experts are not convinced with the growth data?
The data is based on information which is available in IIP (Index of Industrial Production) which has yet not caught in the December figure. That’s one. The other part is corporate filings. The third-quarter filings: we have information on a large number of companies though the process is still going on. So, to that extent, this data is also likely to be impacted by later filings of companies which we are not aware of at the moment.
The principal figure on manufacturing is based on the evidence which we have been getting from the corporate filings as well as from the advance estimate from April to December. As a general characteristic, in these companies you will find that sales growth has been negative. The components of valueadded, which consist of compensation to employees or staff costs, depreciation have been positive.
Profits before interest and taxes are also interestingly positive and the reason for profits being positive is that most of these companies which have seen negative sales are also seeing much sharper declines in intermediate costs.
IIP will at best reflect production figures. Value added is where you have to adjust production for behaviour of things like what happens to intermediate costs and so on, because this has been a period where the basic materials which go in as inputs have seen very sharp reductions in prices.
WPI (wholesale price index) of manufactured goods was negative throughout this period, most minerals continue to be negative, crude petroleum continues to be negative. That is what’s driving, if you like, growth. This is the way the number comes out.
Ever since the new series came in there have been doubts… Why does this doubt about numbers keep persisting?
Because people are thinking about output as being the principal indicator of activity. Output is only a partial indicator of activity – value added is a separate exercise.
Secondly, there is a tendency to think about constant price measurement as somehow being more reflective of reality than current price measurement. That is in general true if you have a system of low generalized inflation or even high generalized inflation. When a significant chunk of the commodity basket prices are negative, you can have a situation where current price growth is lower than constant price growth. That has also happened in these numbers.
Under the circumstances, to say that it is the constant price growth which we are not feeling… well you should be feeling the current price growth. In manufacturing, the constant price growth is 12.6% in the third quarter but in current prices, it comes in at 10.9%. The element which I am trying to make is: a) it’s corporate value added which is different from IIP. The second, value added is in turn different from both profit and sales. The three, components of value added – two of them are more or less determined from much more long-run structural factors: staff costs and deprecation. So, that has to be kept in mind as to what happened.
Finally, the fact that negative price rise means that in effect whatever you are measuring in constant prices is higher than what you were measuring in current prices.
As a country is this not the kind of growth we desire?
I don’t think we have had a situation akin to this in a long time where we have had sustained negative WPI inflation for nine months. A sustained negative WPI inflation is not healthy. You need to address this problem. In part, the problem is driven, in the case of manufacturing, from a lack of demand for manufactured good. That needs to be pushed and that is exactly what the chief economic adviser has also been saying.
How do you see the economy in totality?
In so far as constant price growth is concerned, we have seen an upward trend in growth. So, to the extent that constant price growth reflects growth in quantitative indicators, improvement has taken place, but there are a number of areas of structural weakness which are also accompanying this increase in growth rate. One of them is the fact that our current price growth has come down. Secondly, our capital formation has also not increased. So, these are signs of weakness which persist even though recovery has taken place.
Yearly growth of 7.6% assumes a pick-up in the fourth quarter and a trend reversal from third to fourth quarter. Would you say that or is it just a residual number?
The way we compute this is, we take the three quarters’ data which we have got and project it to four quarters. In the process of the projection, some care is taken to look at underlying trends but, in essence, it is a three quarter growth which is projected on to four. Therefore, the implicit assumption is that the underlying trends which have been seen in the first three quarters will hold out. That is an assumption. But in the past, our revisions have not been that much.
Can we say that there is nothing wrong in the way data is being compiled?
Yes. There is nothing wrong. People have to change the way they view this data because there are significant conceptual differences between this GDP calculation and the earlier one. This is particularly true in case of manufacturing where we made two big conceptual changes and they are related.
Despite the Chennai floods in December, manufacturing has grown sharply in the third quarter. What will you say as experts are not convinced with the growth data?
The data is based on information which is available in IIP (Index of Industrial Production) which has yet not caught in the December figure. That’s one. The other part is corporate filings. The third-quarter filings: we have information on a large number of companies though the process is still going on. So, to that extent, this data is also likely to be impacted by later filings of companies which we are not aware of at the moment.
The principal figure on manufacturing is based on the evidence which we have been getting from the corporate filings as well as from the advance estimate from April to December. As a general characteristic, in these companies you will find that sales growth has been negative. The components of valueadded, which consist of compensation to employees or staff costs, depreciation have been positive.
Profits before interest and taxes are also interestingly positive and the reason for profits being positive is that most of these companies which have seen negative sales are also seeing much sharper declines in intermediate costs.
IIP will at best reflect production figures. Value added is where you have to adjust production for behaviour of things like what happens to intermediate costs and so on, because this has been a period where the basic materials which go in as inputs have seen very sharp reductions in prices.
WPI (wholesale price index) of manufactured goods was negative throughout this period, most minerals continue to be negative, crude petroleum continues to be negative. That is what’s driving, if you like, growth. This is the way the number comes out.
Ever since the new series came in there have been doubts… Why does this doubt about numbers keep persisting?
Because people are thinking about output as being the principal indicator of activity. Output is only a partial indicator of activity – value added is a separate exercise.
Secondly, there is a tendency to think about constant price measurement as somehow being more reflective of reality than current price measurement. That is in general true if you have a system of low generalized inflation or even high generalized inflation. When a significant chunk of the commodity basket prices are negative, you can have a situation where current price growth is lower than constant price growth. That has also happened in these numbers.
Under the circumstances, to say that it is the constant price growth which we are not feeling… well you should be feeling the current price growth. In manufacturing, the constant price growth is 12.6% in the third quarter but in current prices, it comes in at 10.9%. The element which I am trying to make is: a) it’s corporate value added which is different from IIP. The second, value added is in turn different from both profit and sales. The three, components of value added – two of them are more or less determined from much more long-run structural factors: staff costs and deprecation. So, that has to be kept in mind as to what happened.
Finally, the fact that negative price rise means that in effect whatever you are measuring in constant prices is higher than what you were measuring in current prices.
As a country is this not the kind of growth we desire?
I don’t think we have had a situation akin to this in a long time where we have had sustained negative WPI inflation for nine months. A sustained negative WPI inflation is not healthy. You need to address this problem. In part, the problem is driven, in the case of manufacturing, from a lack of demand for manufactured good. That needs to be pushed and that is exactly what the chief economic adviser has also been saying.
How do you see the economy in totality?
In so far as constant price growth is concerned, we have seen an upward trend in growth. So, to the extent that constant price growth reflects growth in quantitative indicators, improvement has taken place, but there are a number of areas of structural weakness which are also accompanying this increase in growth rate. One of them is the fact that our current price growth has come down. Secondly, our capital formation has also not increased. So, these are signs of weakness which persist even though recovery has taken place.
Yearly growth of 7.6% assumes a pick-up in the fourth quarter and a trend reversal from third to fourth quarter. Would you say that or is it just a residual number?
The way we compute this is, we take the three quarters’ data which we have got and project it to four quarters. In the process of the projection, some care is taken to look at underlying trends but, in essence, it is a three quarter growth which is projected on to four. Therefore, the implicit assumption is that the underlying trends which have been seen in the first three quarters will hold out. That is an assumption. But in the past, our revisions have not been that much.
Can we say that there is nothing wrong in the way data is being compiled?
Yes. There is nothing wrong. People have to change the way they view this data because there are significant conceptual differences between this GDP calculation and the earlier one. This is particularly true in case of manufacturing where we made two big conceptual changes and they are related.
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