Thursday, 2 June 2016

The GDP growth rate figures and Dr. Goebbels


 According to Mark Twain ( qouting Disraeli ) there are three kinds of lies : lies, damned lies, and statistics.

  Statistics is such a wonderful thing that with its help one can manufacture any figure one wants, like a conjuror pulling a rabbit out of a hat.

  The latest figures given by the Government of India authorities claiming 7.9% growth in GDP in the last quarter is an excellent example, and reminds one of Lord Haw Haw ( William Joyce ), or  the Nazi Propaganda Minister Dr. Goebbels who kept proclaiming on radio to the German people  right till the very end that Germany was winning the Second World War, when in fact it was losing.

 According to this claim, the Indian economy is the fastest growing economy of the world, outstripping the growth in GDP of the Chinese economy, which grew by only 6.9% in the same period. Evidently, according to this figure, we are heading for an El Dorado or land of milk and honey some time in the future, and as Dr Pangloss would say ( see Voltaire's 'Candide' ), quoting the German philosopher Leibniz, this is the best of all possible worlds.

  But a little scrutiny of the figures throws up several doubts. Are these figures true, or dressed up, like a Potempkin village ? Also, assuming they are true, is this GDP growth benefiting the Indian masses, or only a handful of big businessmen ?

  Exports have fallen from 187.29 billion dollars in  the period April -October, 2014, to 156.29 billion dollars in the period April-October 2015, i.e. a drop of 17.6%.

  So if exports have fallen, and manufacturing has grown by 9%, as claimed by the Union Ministry of Statistics and Programme Implementation, where have the increased quantity of goods manufactured been sold ? In the home market ? but India is a poor country, with 80% people having little purchasing power. And with the sharp escalation in food prices, real incomes have really gone down.
  According to the statement of Raghuram Rajan, the RBI Governor, most factories are running at 70% of their capacity, while in 2011-2012 they were running at 80% of their capacity. This apparently shows manufacturing decline, rather than growth. According to a Business Standard report, corporate profitabilty is below 1% on an average.

  Bad loans by banks continue to mount. According to CARE, non performing assets during July-September, 2015 stood at about Rs. 3.37 lac crores, an increase of Rs. 71,000 crores. According to a report of Morgan Stanley, The number of stalled projects, the bulk of them in the manufacturing and infrastructure sectors, went up. Small and medium enterprises are having a difficult time trying to survive. The real estate sector, which provides a lot of jobs, is down in the dumps, with construction of new buildings going down, and the number of unsold homes going up..

  An article by Andy Mukherjee published by Reuters states that the GDP growth of the Indian economy is one third a statistical mirage, and real GDP growth is more likely to be about 5% rather than 7.4% as claimed by the Indian authorities. Mukherjee says :

 '' The illusion comes from a recent supposed improvement in the way India calculates its Gross Domestic Product. In theory, Indian authorities claim that Indian GDP is  close to international standards. In practice it has become utterly unreliable.

 This week, investors dumped Indian assets after the Reserve Bank of India cut its benchmark interest rate by a quarter percentage point. RBI governor Raghuram Rajan found it difficult to explain why he had reduced borrowing costs five days after the country’s statistics office claimed stellar expansion in GDP.

  What is the real GDP growth of the Indian economy ?  Breakingviews tried to answer that question by looking at three indicators: corporate earnings, auto sales and imports of computer software ( since retained earnings finance new investment projects; auto sales are a proxy for consumer demand; while software imports reflect productivity gains ). Mixing the three in a simple index suggests that growth in the most recent quarter was closer to 5 percent."

 But let us assume that the 7.4% figure is correct. However, the further question still remains : is this GDP growth benefiting the Indian masses, or just a handful of big businessmen ? Is the rich-poor divide growing ? Dilip Shanghvi, Gautam Adani, Mukesh Ambani, Aziz Premji, Pallonji Mistry, etc are worth billions of dollars, while the majority of Indians are struggling to make two ends meet, with prices of foodstuffs soaring

 1 crore youth are entering into the job market every year, but in the last 12 months only 1.4 jobs were created.  Is this vikas ?

 I submit that the real problem before the Indian economy is not raising production ( that can easily be achieved considering our large pool of excellent engineers, technicians and managers, and our huge natural resources ), but how to raise the purchasing power of the Indian masses ? It is no use merely raising production, for unless the people have purchasing power, how will the goods produced be sold ? That is the real problem requiring a solution.. Fudging figures of GDP growth will lead us nowhere.

  The time has come when our patriotic intelligensia should use their creativity to find a genuine solution

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