India: No Official Forecast for Macro Aggregates

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.