While Albert Einstein is queing to enter heaven, he meets three men. He asks about their IQs.
The first replies 190, “Wonderful” exclaims Einstein. “We can discuss my theory of relativity”. The second answers 150. “Good”, says Einstein, “I look forward to discussing the prospects for world peace.” The third mumbles 50. Einstein pauses, “So what is your forecast for GDP growth next year?”
- An old joke quoted in The Economist London, 1992, June 13, page 5
Perhaps, we took the joke too seriously! In India no official forecast is done for GDP and related macro aggregates. The National Accounts Division (NAD) of Central Statistical Organization, Ministry of Statistics and Programme Implementation (MSPI), Government of India, is the repository of the country’s macro aggregates.
NAD is not mandated to give forecast; ditto all other economics division of the Government. The Planning Commission indicates a ‘desirable’ rate of growth for major macro aggregates any given Five Year Plan. Even this ‘desirable’ rate of growth of GDP, external sector is not included. Forecasts for export, import, current account, etc, which too is also ‘desirable’ in nature, hang in isolation.
Nomenclature and Sequence of Release
It is necessary to have a clear cut understanding of the growth numbers released by CSO. Illustratively, CSO has been releasing Quarterly Estimate of GDP etc. in the recent years as a part of our compliance to the Data Dissemination System, IMF.
The estimate for GDP for the third quarter i.e. October – December ‘06 – 07 was released on February 28 ‘07. When such numbers are released (8.6%), there was euphoria all around. Perhaps, we forgot that this was a number with very limited coverage. Besides, the quarterly growth rate data should not be annualized.
CSO realizes Advanced Estimate (AE) of GDP and related numbers. The AE for 2006 - 07 (9.2%) was released on February 7, 2007 i.e. just one month before the completion of the year! AE also suffers from number of limitations, and is revised subsequently as Quick Estimate (QE). The QE for the year 2005 - 06 was released on January 31 2007! Again, the QE would be revised into Provisional Estimate in the middle of the following year.
Thus, to get a realistic idea about India’s GDP growth one has to wait for one/two years.
One cannot do business planning based on this past data. One has to depend on the projections coming from international organizations like IMF, World Bank, Asian Development Banks etc. as well as reputed private organizations, national as well as international.
(1. This posting is in sequence to the previous one.
2. You may have a look at the MSPI website for the recommendation of The National Statistical Commission, August 2001.)
Discussions:
Thanks to those who have commented and/or send mails to the previous post. Two points have emerged.
1. Ramesh ‘believes’ that 9% rate of growth will be sustained for next two to three years. Any particular growth rate is not a matter of ‘belief’, it’s a rational choice based on the given objective criteria, subject to revision periodically as things move. Perhaps, better to err on the conservative side. You may consider basing your business on 8 to 8.5% rather than 9%.
2. Yes, Shrinath, there is a kind of aggregate planning for agriculture in general and specific crops in particular. But these are again done by the Planning Commission and are ‘desirable’ in nature. No year to year monitoring/forecasting is done. The Ministry of Agriculture, GOI collect/estimate agriculture output. These estimates are revised number of time in any given year. NAD of CSO is mandated to use these numbers in estimating the National Account. This is one of the reasons that GDP estimate undergo several revisions.
Second, agriculture is a state subject. If any corporate planning type of an approach to be made, whether for state level aggregates and/or for specific crops, the initiative has to come from the state. At the state level, there is a Ministry of Agriculture, Directorate of Economics & Statistics and State Planning Board. They should join hands to do comprehensive planning/ forecasting. The State level political leadership needs to take a call.
Tuesday, April 24, 2007
Thursday, April 12, 2007
Indian Economy: Forecasting the 'High' Growth Rate
Everybody talks about
- Why 9 % is called high?
- Can 9% be achieved in a sustainable manner in the long term?
- What are the major impediments and how they can be managed?
- Based on the strengths gained during the recent years, what is the likely growth rate of the economy
- The targeted 9% is desirable and high - largely because at this rate our per capita
- Our trend rate of growth has been 4.7% (carg) during the last 55 years. During the six year period beginning 2001 the rate of growth was 6.5 %. But during the last three years a record high growth rate of 8.3% has been achieved. This created a sense of optimism.
- However, the prospect of growth for the current year and the next has already been reduced. This is largely due to high inflation. The RBI’s tight money policy cure may aggravate the disease itself.
There are several critical problems of the Indian economy, which are well known. In this Note, I would like to specifically focus on one critical problem area i.e. agriculture. I shall, also provide my carefully construed long term
The share of agriculture in our
The average rate of growth during the six years from 2001 has been a meagre 2.5%.
One major issue is widely oscillating growth rates. Illustratively, the yoy growth rates of agriculture
| -0.6, 6.5, - 8.1, 10.9, - 0.2, 6.3. |
The wild oscillations will have to be reduced. But this is going to be stupendous task.
Agriculture remains a major problem area despite our so called development planning initiatives. Problems like credit delivery, infrastructure including transportation and storage, farmers not getting return due to intricate involvement of layers of middlemen, state level regulations etc. known and we have been living with this problem for so many decades! Even the frequent suicides committed by the farmers have become statistics.
What is not usually discussed is the number and area of operational holdings of our farm land. According to the latest available official data (1991), the total number of holdings and area in 1990 -91 were 10.3 mn and 165.6 mn hectares, respectively.
The percentage distribution of the number of holdings for marginal (below one hectare) and small (one to two hectares) farmers is as high as 78% and that of large (10 hectares and above) size holdings is only 1.6 %. The percentage distribution of area of holdings is 32% and 17.4%, respectively.
As seen from above, the distribution is highly skewed. There are too many small and marginal farmers with too small size of holdings. Just saying that we need to do land reform would be paying a lip service. Simply speaking, in this regard status quo seems to be our destiny.
Our plan documents read like essays. They are expressions of good intent no doubt, but they do not have any managerial approach / implementable mechanism.
The market friendly reforms introduced in the country since '91 – 92 have bypassed the agriculture sector. According to 2001 Census, 67% of
How to bring these people in the employment and income stream? If this sector can grow at a sustainable rate of 4% per year, perhaps only then we can talk about the sustainable 9% rate of growth of
Agriculture, being a State subject under the Indian Constitution, needs a managerial approach at the States level. Illustratively, a five tier sector specific corporate planning approach should be prepared:
² Cereals and pulses including oil seeds
² Cash crops like sugar, cotton and jute
²
² Fruits and vegetables including tobacco and
² Poultry, dairy and fishery etc
Each of these sectors (which can be divided/ sub - divided variously) is unique in terms of harvesting cycle, cropping pattern, needs for irrigation and fertilizer, etc. Their distribution across the country, the culture and systems of land ownership etc. vary from State to State. Therefore, it will be necessary to work out a sector – and state – specific managerial approach. The state planning boards together with leading B - Schools/ agri universities in the State can take up this assignment.
In
Unless these critical problems of agriculture are resolved, we can forget the sustainable 9% rate of growth.
At the same time, to my humble understanding the Indian economy has achieved the feasible potential to grow at the rate of 7.5% per year. In doing this projection I have considered, inter alia, the following encouraging factors together with my analytical:
² ICOR has improved at 3.6 by the end of '06 - 07.
² Domestic savings as % of
² Investment as % of
² Net inflow of foreign capital as % of
Improvements on all these fronts have been possible because of the introduction of the liberal market oriented macro policy compact. There are number of other factors both, qualitative and quantitative, like gains in labour, capital as well as total factor productivities, disciplined rigours of corporate restructuring in the face of increasing competition and the dynamics of globalization etc.
Thus, this neo - Hindu 7.5% rate of growth of
For a vast, very complex and historically rooted democratic country like ours, the 7.5% neo-Hindu growth rate should serve us alright, at least for the time being.
An elephant after all cannot fly like an albatross; it should walk fast in robust strides.
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