"In terms of LSM growth, a number of sectors that are showing strong performance; (for example, fast moving consumer goods (FMCG) sector; plastic products; buses and trucks; and even textiles), are either under reported, or not even covered. The omission of such important sectors from official data coverage, probably explains the apparent disconnect between overall economic activity in the country and the hard numbers in LSM."State Bank of Pakistan Annual Report 2014
Economists have long argued that Pakistan's official GDP figures significantly understate real economic activity in terms of both production and consumption.
M. Ali Kemal and Ahmed Waqar Qasim, economists at Pakistan Institute of Development Economics (PIDE), explored several published different approaches forsizing Pakistan's underground economyand settled on a combination of PSLM (Pakistan Social and Living Standards Measurement) consumption data and mis-invoicing of exports and imports to conclude that the country's "informal economy was 91% of the formal economy in 2007-08".
And now the State Bank of Pakistan has focused on the production side of the economy in its annual report for Fiscal Year 2014. The nation's central bankers have singled out the economic activity large scale manufacturing sector as its focus. They say that the existing LSM (Large Scale Manufacturing) index was based on Census of Manufacturing Industries (CMI) that was conducted in 2006 which included only those sectors which had significant value addition to Gross Domestic Product (GDP) at the time of census.
In the years since 2006 CMI (Census of Manufacturing Industries) census, Pakistan has seen a significant expansion of its middle class along with rapidly growing consumer demand in sectors such as processed foods and fast-moving-consumer goods (FMCG). It's one of several major new sectors whose growth is not reflected in the official GDP figures.
Pakistan's Processed Foods and FMCG Sector Source: BMA Capital
According to a report by analysts at Pakistan's Topline Securities that examined 25 consumer firms in various sectors, the 2012 sales of the FMCG firms increased by 17% to Rs. 334 billion while profits grew by 40% to Rs. 24 billion. In the five years between 2008 and 2012, sales of these companies showed a compounded average growth rate (CAGR) of 18%, while profits grew at a CAGR of 20%.
Engro Foods, a star performer in the sector, reported 191% increase in profit in 2012 alone, led by the dairy and beverages segment. Other players such as Nestle, Proctor & Gamble and Unilever, have also seen explosive growth with many new plants in production to meet demand. The growth in this sector is not reflected in the LSM component of GDP. The SBP report further explained that the LSM data was not being reported in Pakistan in accordance with the International Standard Industrial Classification (ISIC) of United Nations Statistics Divisions defined 22 broad categories of manufacturing. The reporting of LSM is limited to only 15 sectors identified by the ISIC while data pertaining to manufactures of apparels, publishing, printing products and recorded media, fabricated metal products (except machinery and equipment), office and accounting machinery and computers, medical precision and optical instruments and recycling of metal and non-metal waste scrap, is not included as part of Pakistans LSM.
Pakistan has changed a lot since 2006 in terms of economy and demographics. The World Bank moved Pakistan from a low-income to middle-income country in 2007. Pakistan is much more urbanized and more middle class now than it was in 2006. Pakistan's large scale manufacturing (LSM) sector has changed to respond to meet the rising new product demands of the country's growing middle class consumers. Its time for Pakistan Bureau of Statistics (PBS) to conduct a new manufacturing census and Pakistan Census Bureau to do a population census to paint a more accurate picture of the country's demographics and economy now.
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NEW DELHI—India’s economy is expected to grow at 7.4% in the current fiscal year, a growth rate that rivals China’s, reflecting a strengthening recovery but also a recent radical revision in the way the country calculates its gross domestic product. The Indian statistics ministry was careful Monday to play down any notion of a horserace with Beijing. “There is no comparison,” said Ashish Kumar, director general of the Central Statistics Office, since China’s economy is several times larger than India’s. “We are not here in a beauty contest.”
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An employee cuts sheet metal on a bandsaw inside an Ishwar Engineering Co. factory in Mumbai on Feb. 7. PHOTO: BLOOMBERG NEWS
If India can sustainably boost its growth rate to a level outpacing that of its northern neighbor and strategic rival, it would mark a comeback for the South Asian nation, whose economy had until recently appeared to have lost its shine amid corruption scandals and gaping trade and budget deficits. It would also provide a major political boost to the government of Prime Minister Narendra Modi, who won a landslide electoral victory last year after pledging to revive the economy and drive development so India could catch up with its richer neighbors in East Asia. For the final three months of 2014, the third quarter of India’s fiscal year, gross domestic product grew 7.5%, the statistics ministry said, buoyed by accelerated growth in government spending and financial services. But the country’s new growth figures—and the revised calculations that underpin them—have provoked confusion and jubilation in roughly equal measure. Shubhada Rao, chief economist at Mumbai-based Yes Bank , said the robust revived data, considered alongside other indicators of continued frailty, “do not add up in terms of the extent of improvement” in GDP. Late last month, the statistics ministry said it was updating the base year used as the reference point for measuring price changes, as well as incorporating newer, more-comprehensive data into its GDP calculations, which aim to measure the country’s total economic output. The ministry also shifted its focus to GDP computed at market price, not at factor cost, as its main indicator of economic expansion. Market-price GDP gauges activity by adding up consumers’ and firms’ spending, whereas factor-cost GDP tabulates producers’ costs. The first growth estimates produced using the new methodology showed growth in the previous fiscal year, which ended last March, well above what was originally announced: 6.9% instead of 4.7%. The size of the economy, however, was relatively unchanged. That revision seemed difficult to square with the events of that year, in which the threat of tighter monetary policy by the U.S. Federal Reserve roiled emerging markets and provoked emergency intervention by India’s central bank. Monday’s data included bumped-up estimates of growth for the current fiscal year as well. Growth in the three months that ended in September was revised to 8.2% from the original estimate of 5.3%. And in the quarter before that, the official growth rate was changed to 6.5% from 5.7%, indicating substantial acceleration between those two quarters instead of a slight slowdown as previously estimated. The latest figures, which describe the economy’s performance since Prime Minister Modi took office last spring, also seem much stronger than what other data imply. Mr. Modi has taken some steps to improve the business environment and streamline bureaucratic procedures. Indian companies announced $64 billion in new investment projects in the fourth quarter of 2014, by one estimate—the highest level in four years. But they don’t appear to be putting big money on the table yet. Exports in December shrank 3.8% in dollar terms from a year earlier. Financial constraints are a major reason investment hasn’t picked up. Corporations are burdened with debt and banks are reluctant to lend. Finance officials have said the government budget for the coming fiscal year, which will be unveiled at the end of this month, will likely include substantial investments in railways, roads and housing to compensate for weak investment by private firms. Such indications of subdued activity have vexed economists trying to understand the new, peppier GDP figures. “We are still trying to connect the dots,” said Dharmakirti Joshi, chief economist at the Mumbai-based rating agency Crisil. He said that for him, the main difficulty for forecasting India’s future growth is that different indicators now paint divergent pictures of manufacturing activity. For the previous fiscal year, the government’s index of industrial production showed manufacturing activity slowing by 0.8%. The new GDP data, meanwhile, show a 5.3% jump in manufacturing for that year. “There’s a big disconnect,” Mr. Joshi said. Vidya Mahambare, an economics professor at the Great Lakes Institute of Management in Chennai, suspects India’s growth figures for the first decade of the 2000s will eventually see big revisions as well. Calculated using the new parameters, economic expansion during the fat years might have maxed out at 10% or even 11% instead of 9%, Ms. Mahambare said. “Whatever we thought about potential growth and business cycles—everything changes.” For now, though, Mr. Modi’s government is spurring optimism that deep, structural obstacles to economic growth are gradually being removed. “Things are so clogged up throughout, whether you’re talking about infrastructure projects being stalled, permissions not coming in, clearances not coming in,” said Satish Reddy, chairman ofDr. Reddy’s Laboratories Ltd. , a Hyderabad-based pharmaceutical giant. He counseled patience. “Everybody is bullish about India. Everybody has the confidence. But it just needs some time to play out and really translate into numbers,” Mr. Reddy said. —Rajesh Roy contributed to this article.
