📰 India is not the fastest growing big economy
A closer look at recent data on GDP shows that the numbers are flawed and recovery is incomplete
•The Provisional Estimates of Annual National Income in 2021-22 just released show that GDP grew 8.7% in real terms and 19.5% in nominal terms (including inflation). It makes India the fastest growing major economy in the world. Further, the real economy is 1.51% larger than it was in 2019-20, just before the novel coronavirus pandemic hit the world. In nominal terms it is higher by 17.9%. These numbers imply that the rate of inflation was 10.8% in 2021-22 and 16.4% between the two years, 2019-20 and 2021-22.
Quarterly growth rates
•This picture implies almost no growth and high inflation since the pre-pandemic year. So, the tag of the fastest growing economy means little. If an economy drops sharply and then rises equally fast to reach its earlier level, that cannot be taken as an indication of a rapidly growing economy.
•The quarter to quarter growth currently may give some indication of the present rate of growth. In 2020-21, the quarterly rate of growth increased through the year. In 2021-22, the rate of growth has been slowing down. Of course in 2020-21, the COVID-19 lockdown had a severe impact in Q1 (-23.8%); after that the rate of growth picked up. In 2021-22, the rate of growth in Q1 had to sharply rise (20.3%). Ignoring the outliers in Q1, growth rates in 2021-22 have sequentially petered out in subsequent quarters: 8.4%, 5.4% and 4.1%. True, the last quarter (January-March 2022) data was impacted by the Omicron-related lockdowns in January and February. It was further impacted in March by the supply disruptions following the war in Ukraine and the severe COVID-19 lockdown in China. Going forward, while the lockdown in China is over, the war-related impact is likely to persist since there is no end in sight. Thus, price rise and impact on production are likely to persist. The rapid rise in prices will impact demand from the vast majority of citizens who are losing out. That will reduce growth further.
Data as the problem
•More worryingly, the issue is about correctness of data. The annual estimates given now are provisional since complete data are not available for 2021-22. They may be better than the second advance estimates released three months ago as more data become available. There is a greater problem with quarterly estimates since very limited data are available for estimating it. So, the data for the fourth quarter of 2021-22 released now is even more problematic
•The first issue is that during 2020-21, due to the pandemic, full data could not be collected for Q1. Further, for agriculture, quarterly data assumes that the targets are achieved. But in Q1, a lot of fruits, vegetables, flowers, milk and poultry products could not come to the market, and rotted and wasted. This is more than 50% of the agriculture output. Thus, the growth rate of agriculture was certainly less than the official figure of 3%.
•Agriculture is a part of the unorganised sector. Very little data are available for it but for agriculture — neither for the quarter nor for the year. It is simply assumed that the limited data available for the organised sector can be used to act as a proxy. In other words the non-agriculture unorganised sector is represented by the organised sector. The data for the full organised sector are also not available so ‘high frequency’ data (listed in the press note) are used. For instance, Goods and Services Tax (GST) collection data are used. But, it is well known that GST is collected almost entirely from the organised sector. In brief: very little data are available for quarterly estimates; and even less is available for the unorganised sector. Since the same method is used to estimate the annual growth rate the errors get repeated.
Errors in total, components
•If better data became available after the shock of the lockdown, and it got used, there should be substantial revision in the previous year’s quarterly data. But if one compares the Q1 2020-21 data in the latest release with the data released in May 2021, the change is 0.3%. Does this imply that the high frequency data used is very well able to predict quarterly GDP? This is unlikely to be the case when a shock is administered to the economy which changes the parameters of the economy. The data remaining largely unchanged implies that the same error is being carried forward.
•The quarterly data is added up to yield the annual total. If a better method was used to estimate the annual data, it should not equal the sum of the quarterly data which as argued above is estimated on the basis of a limited data set. The implication is that the errors in the quarterly data are repeated in the annual data.
•The method using the organised sector to proxy the unorganised non-agriculture sector may have been acceptable before demonetisation (2016) but is not correct since then. The reason is that the unorganised non-agriculture sector suffered far more than the organised sector and more so during the waves of the pandemic. Large parts of the unorganised non-agriculture sector have experienced a shift in demand to the organised sector since they produce similar things. This introduces large errors in GDP estimates since official agencies do not estimate this shift. All that is known is that the Micro, Small and Medium Enterprises (MSME) sector has faced closures and failures.
•If GDP data are incorrect, data on its components — private consumption and investment — must also be incorrect. Most often, ratios are applied to the GDP to estimate them. But, if the GDP is in error, then the ratios will yield erroneous results. The other main components — government and external trade — may be assumed to be reasonably accurate even though this data is revised over several years.
•Further, the ratios themselves would have been impacted by the shock of the lockdown and the decline of the unorganised sectors. Additionally, private consumption data is suspect since according to the data given by the Reserve Bank of India which largely captures the organised sector, consumer confidence throughout 2021-22 was way below (not marginally lower) its pre-pandemic level of 104 achieved in January 2020. So, consumption could not have come close to its pre-pandemic level.
•In brief, neither the total nor the ratios are correct. Clearly, consumption and investment figures are over-estimates and very likely because the decline in the unorganised sectors has not been captured.
Possible correction
•In the best possible scenario, let us assume that the organised sector (55% of GDP) and agriculture (14% of GDP) are growing at the official rate of growth of 8.2% and 3%, respectively. Then, they would contribute 4.93% to GDP growth. The non-agriculture unorganised component is declining for two reasons: first, the closure of units and the second the shift in demand to the organised sector. Even if 5% of the units have closed down this year and 5% of the demand has shifted to the organised sector, the unorganised sector would have declined by about 10%; the contribution of this component to GDP growth would be -3.1%.
•Based on the above assumptions, the GDP for 2021-22 would have grown by only 1.8%, and not 8.7%, and it would be less than the pre-pandemic GDP of 2019-20 by 4.92%. Clearly, recovery is incomplete and India is not the fastest growing big economy of the world.
The Government’s strategy to quell West Asia’s outrage must include the need to foster an understanding of other faiths
•The strong and widespread targeting of India in the Islamic world over the past few days arose from a specific theological consideration. It was not directly related to the politics or policies of India’s ruling dispensation though its opponents within India would wish to give it that colour. The veracity of this assessment is borne out by the general apathy of the Islamic ummah towards India’s Muslim population. From time to time, the Organisation of Islamic Cooperation (OIC) has criticised the Indian state’s alleged discrimination of its Muslim minorities. However, the organisation’s views have never formed the basis of its member-states’ bilateral ties with India. And, Islamic states have not been swayed by Pakistan’s consistent portrayal of the Narendra Modi government as fascist and anti-Muslim.
•Indeed, India’s relations with some significant Muslim countries such as Saudi Arabia and the United Arab Emirates (UAE) have strengthened since Prime Minister Narendra Modi assumed office in May 2014. It is possible that the current resentment, even outrage, on account of the present controversy may lead to a greater scrutiny in the ummah of the Modi government’s policies towards the country’s Muslims. India’s social situation may come under a deeper focus but the governments of Islamic countries would not want their India policies to be determined by theological considerations; they have an array of interests at stake in their India ties.
There is a distinction
•That the Islamic governments protested against the comments made regarding the Prophet by the former Bharatiya Janata Party (BJP) National Spokesperson, Nupur Sharma, and the former media head of the party’s Delhi unit, Naveen Kumar Jindal, was not surprising. What was so though was that neither the Government nor the ruling party seemed to have realised the great offence they constituted to all Muslims worldwide and the anger the comments would generate. At least the astute External Affairs Minister, S. Jaishankar, who has been a distinguished diplomat in his earlier avatar, should have known that despite enormous differences within themselves, Muslims venerate the Prophet; they all find any perception of disrespect towards him to be intolerable. Thus, there is a distinction between criticising some social practices of Muslims and what is perceived to be an attack on the personality of the Prophet.
•Ms. Sharma’s remarks during a talk show on a prominent TV channel were made on May 26. The next day a clip of these remarks was added to a tweet. That drew wide attention in India and Ms. Sharma complained of having received threats to her person and also her family members. At the same time a Muslim organisation lodged a legal complaint against Ms. Sharma. It was inevitable that in these times of instant communications and social media, Ms. Sharma’s comments would find an audience in Islamic countries; and, that anti-India elements would also seek to publicise them. Yet, it appears that the Indian establishment perhaps thought if attention was given to this matter at all, that Ms. Sharma’s remarks would be placed in the context of the shrill charges and counter-charges made daily on Indian TV, and would therefore not be taken seriously.
End misperceptions
•Is this because the Indian system, including the ruling dispensation, has an inadequate appreciation of the sensitivities of different faiths? Is it because the Indian intellectual tradition as it has evolved after Independence does not pay sufficient attention to faith, perhaps, considering it backward? And, now while there is an assertion of religiosity, there is also a lack of curiosity about other faiths. This seems to cut across all segments of society and has led to a lack of knowledge of other religions, leading to misperceptions. This is illustrated in simple things such as innocently sending ‘happy’ messages on occasions of mourning of adherents of another faith or in works of art. But there is a darker side to society too which is witnessed in the reinforcement of prejudice about other faiths and the use of words and expressions which cause offence. This can also be witnessed in extolling the virtues of one’s own faith and putting another in an unfavourable light. Clearly, all this points to the need to foster an understanding in society at large of other faiths and their sensitivities. This is especially needed in our multi-faith society at a time when religiosity is rising sharply across the world.
During a VIP visit
•It was unfortunate that the situation arising out of Ms. Sharma’s remarks occurred at a time when the Vice-President of India, M. Venkaiah Naidu, was on a three-nation tour of Gabon, Senegal and Qatar. Mr Naidu left India on May 30 and after visiting the two African countries, was to reach Doha on June 4. Clearly, the Indian foreign policy establishment led by the External Affairs Minister missed the sentiment brewing in the Islamic world because of Ms. Sharma’s comments. If the External Affairs Minister had assessed what was happening, he would have surely taken action to prevent any embarrassment to the Vice-President on foreign soil. It can hardly be disputed that the President of India, the Vice-President and the Prime Minister, should never be put even in an uncomfortable position when they are abroad. Did this lapse occur because of a lack of appreciation of how Islamic sentiment is roused because of a perception of an insult to the Prophet?
•According to a report in this newspaper, the “damage control” process began when the Vice-President was flying from Senegal to Doha and the Qataris conveyed that the ceremonial banquet of Mr. Naidu’s host, the Deputy Amir of Qatar, would have to be called off because he was suspected to have been exposed to COVID-19. In such circumstances a very senior person hosts the customary banquet but it is not cancelled. It also appears now that the Indian side was taken aback when the Indian Ambassador in Doha was called in on June 5 and Qatar while appreciating the action taken against Ms. Sharma and Mr. Jindal by the BJP demanded that India issues a public apology for Ms. Sharma’s remarks against the Prophet. There is no question of making one for the remarks of a party functionary.
•This can only be called a very offensive action against India by Qatar. It could only have caused the greatest embarrassment to Mr. Naidu. It is to his credit that he proceeded with the visit. After the Qataris went public with their action, other Islamic countries lodged protests too. India did well to reject the statements of the OIC and Pakistan for they reeked of political considerations.
The last word
•There is a mutuality of interests between the Arab states and India, and hence when the temperature cools, the flow of relations will go on. But India must take the obvious lessons from this entire episode, beginning with greater sensitivity to all faiths both for social harmony and promotions of India’s external interests.
