India Fudging GDP Figures to Look Better Than China?

[RiazHaq]

#India revises recent past GDP growth estimates downwards. Not growing faster than #China

http://www.nasdaq.com/article/india-cuts-recent-economic-growth-estimates-20160129-00351 …


India's government said Friday that economic expansion in the past few years was slightly slower than previously estimated, in the first revision to controversial new statistics that show India zooming ahead of China in 2015 to become the world's fastest-growing major economy.

Year-over-year growth in India's output was 7.2% for the 12 months that ended March 31, 2015, the Statistics Ministry said, down from the previous calculation of 7.3%. For the year prior, the growth estimate was cut to 6.6% from 6.9%. Expansion in the year before that was bumped up to 5.6% from an initial reading of 5.1%.

The scheduled updates were the first tweaks to India's data on annual gross domestic product since the country's statisticians a year ago revamped their methods and data sources for estimating GDP, a broad measure of an economy's total output.

Friday's modest revisions, based on additional data that have come in since last year, are likely to reassure analysts and India watchers that the new figures are trustworthy.

They also lend credence to the perhaps more-startling conclusion yielded by the revised calculations: that at 7% or more in the first three quarters of 2015, India's growth is besting China's as the latter country's construction and investment boom cools.

Questions about India's new statistics are likely to persist, however.

"Understanding the real economy and the pace and strength of economic recovery is unusually difficult this year," the Finance Ministry wrote in a December paper.

Last year's GDP revision was long in the works, part of a regular process of updating the reference year for marking economic trends. Indian statisticians tapped fresh data on mom-and-pop stores, mutual funds and livestock. They also adopted techniques that bring the GDP computation more in line with United Nations guidelines.

Few economists believe India's statistics suffer from political meddling, as is widely thought to be the case in China. But even Indian officials have been flummoxed by the disparity between the fast clip of GDP growth and other signs that the economy has for years been plodding ahead at best.

In 2012, the government's budget deficit swelled, sapping private investment. Inflation shot up. Corruption scandals hurt the credibility of the administration of the day, led by the Congress party.

India was also battered by global forces. In 2013, after the U.S.Federal Reserve hinted that it might soon taper its bond-buying program, capital that had been funding higher-yielding investments in emerging markets suddenly took flight. The rupee plunged, impelling the central bank to keep interest rates high.

By the old GDP numbers, 2013 and 2014 were the first two fiscal years to see consecutive growth of below 5% since the 1980s.

Now, by Friday's updated data, growth in those years was 5.6% and 6.6%, respectively. If output was expanding so quickly even in that period of tumult, some economists hypothesize, then at full steam India's annual growth could be in the double digits.

That will be hard to confirm without more years of revised GDP estimates. The statistics office says it is still working to produce refreshed figures from as far back as 2005. Output data for the final quarter of 2015, and the first advance estimate of growth in the 12 months that end on March 31, are due to be released on Feb. 8.

"More than the revision, what we're keen on is what's happening with the past series," said Anurag Jha, a Citigroup Inc. economist in Mumbai. Right now, he said, "we are working with all these uncertainties."

 

[RiazHaq]

India’s economy expanded by 7.3% last year, outpacing every other major nation, including China, for the first time in nearly two decades.
But as with most developing countries, where official statistics can be dicey even when they aren’t showing world-beating growth, India’s economy defies easy measurement. Most enterprises are tiny and unregistered, and most workers are employed off the books. The government’s infrequent surveys represent only a best guess of the value being added in back-alley workshops, outdoor markets and other cash-based corners of the economy.
So even if India’s measurement of gross domestic product, a broad indicator of activity, isn’t thought to be politically manipulated like China’s, it should come with a warning label: Handle with care.
GDP in India, “much more than in other economies, is more an estimate than a measurement,” said Neelkanth Mishra, a Credit Suisse economist in Mumbai.
The fog surrounding India’s GDP places challenges before analysts and policy makers—and just plain baffles some of them. The country’s central bank, sensing an economy running at less-than-full blast despite strong headline growth, has cut its main interest rate five times since the start of 2015.

ENLARGE



One reason for the data murkiness can be found on Lal Bazar Street, a busy thoroughfare of tea merchants, typists-for-hire and a sitar shop in the heart of Kolkata, the country’s onetime colonial capital.

Advertisement



​

Within the dingy commercial buildings that line the roads in all directions are hundreds of addresses used to register shell companies, or ones used for tax-avoiding financial maneuvers and little else, tax authorities say.
Yet because these firms regularly file balance sheets to the government, they appear in a new official database of corporations—and get counted when statisticians tot up India Inc.’s contribution to national output.
India’s numbers have been under a microscope since it revised methods for estimating GDP last year, causing performance in earlier years to shoot up. Growth stayed brisk throughout 2015 even as exports, cargo traffic and other indicators disappointed.
A report from India’s Ministry of Finance said data-related uncertainty was causing economic signals to be “mixed, sometimes puzzling.”
The GDP revision included updates large and small. Based on an academic study of “dung evacuation rates,” goats and sheep were found to be contributing more to the economy, as producers of natural fertilizer, than previously thought. A much wider array of financial services is now being counted. But there are still areas where some observers, including the International Monetary Fund, see India’s data falling short.
To strip price changes out of a wide swath of GDP, for instance, India uses its wholesale price index—which, thanks to lower oil prices, has been decreasing for 17 straight months. But many businesses, particularly services like finance and information technology, haven’t benefited much: Retail prices are still climbing at around 5% a year overall. If India’s statisticians were factoring in more of these price rises, then their inflation-adjusted GDP figures would be lower.
In a March report on India, the IMF criticized the use of wholesale prices in GDP. In a written response to questions, the country’s Central Statistical Office acknowledged the issue, but said that until India updates its inflation measures, the wholesale price index “remains the best available alternative.”
“There’s no rhyme or reason why the service sector would be deflated by WPI,” said Kunal Kumar Kundu, Socit Gnrale SA’s India economist. “It’s basically a data availability issue. That will always continue to be a challenge.”
Data availability is also a problem when it comes to small-time services like mom-and-pop stores, hairdressers and repair shops, which account for more than 5% of India’s GDP. The government comprehensively measures their activity only every few years, so sales-tax revenue is used to approximate growth in between—another practice the IMF criticized in its report. The statistics office said tax revenue is an accurate proxy.
India relies on another workaround to gauge corporations’ contribution to the economy. The new database includes hundreds of thousands of companies’ balance sheets. But because not all of them file on time each year, the statistics office has to extrapolate to produce an initial estimate of GDP.
This is where Kolkata’s shell entities may be entering the growth calculation. Income-tax authorities say they’ve logged 14,000 shell firms and counting in a new enforcement database.
T.C.A. Anant, India’s chief statistician, said shell companies are small by nature and unlikely to throw measurements off by much. “When you work with such large numbers, these things balance out.”
Whatever the data’s specific kinks, India’s GDP haze is sending some grasping for other tools.
Ambit Capital, a Mumbai-based brokerage, has created an index named after Li Keqiang,China’s premier, who once famously said his country’s GDP figures were “man-made.” Using vehicle sales, airport cargo, electricity demand and imports of machines and equipment, Ambit’s index indicates that momentum in India has been flagging since 2014.
Ila Patnaik, a former adviser in the finance ministry, said that in more than 20 years of studying India’s economy, the official GDP numbers have never appeared more out of step with other metrics.
“I don’t even know how to make sense of it,” she said. “Everything has gone out the window.”

 

[RiazHaq]

Off balance: #India’s twin balance-sheet problem. Credit slump amid rising non-performing loans. http://www.economist.com/news/finan...india-stuck-alarming-credit-slump-indias-twin … via @TheEconomist

IF INDIA is indeed the world’s fastest-growing big economy, as its government once again claimed this week, no one told its bankers and business leaders. In a nation of 1.3bn steadily growing at around 7% a year, the mood in corner offices ought to be jubilant. Instead, firms are busy cutting back investment as if mired in recession. Bank lending to industry, growth in which once reached 30% a year, is shrinking for the first time in over two decades (see chart). If this is world-beating growth, what might a slowdown look like?

India’s macroeconomy chugs along (though the quality of government statistics remains questionable), but its corporate sector is ailing. The sudden and chaotic “demonetisation” of 86% of bank notes in November hardly helped. But the origins of India’s troubles go much deeper. After India dodged the worst of the financial crisis a decade ago, a flurry of investment was made on over-optimistic assumptions. Banks have been in denial about the ability of some of their near-bankrupt borrowers to repay them. The result is that the balance-sheets of both banks and much of the corporate sector are in parlous states.

After years of burying their heads in the sand, India’s authorities now worry that its “twin balance-sheet” problem will soon imperil the wider economy. Both the Reserve Bank of India (RBI) and the government have nagged banks to deal with their festering bad loans. Around $191bn-worth, or 16.6% of the entire banking system, is now “non-performing”, according to economists at Yes Bank. That number is still swelling.

Given the linkages between them, companies and banks often run into trouble concurrently. But countries where banks’ balance-sheets resemble Swiss cheese usually have no choice but to deal with the issue promptly, lest a panicked public start queuing up at ATMs. India is different. State-owned lenders make up around 70% of the system, and nobody thinks the government will let them go bust. As a result, what for most economies would be an acute crisis is in India a chronic malaise.

That doesn’t make it any less painful. Investment is a key component of GDP, and it is now shrinking, thanks to parsimonious firms. India runs a trade deficit and the government is seeking to cut its budget shortfall, which leaves consumption as the sole engine of economic growth. Indeed, until demonetisation, consumer credit was booming, up by about 20% year on year. Some may wonder whether those are tomorrow’s bad loans, or when consumers will run out of stuff to buy.

Meanwhile, banks’ profits are sagging, even without the impact of fully accounting for dud loans. State-owned lenders collectively are making negative returns. Thirteen of them are described in a recent finance-ministry report as “severely stressed”. Demonetisation did indeed bring in lots of fresh deposits, but the bankers were then browbeaten into slashing the rates at which they lend, further denting their margins.

The dearth of investment is in part due to a lack of animal spirits. Sales outside the oil and metals sector are up by a mere 5% year on year, compared with nearer 25% at the start of the decade. Capacity utilisation, at 72.4%, is low by historical standards: even if money were available, it is not clear many would want to borrow.

Bankers, companies and policymakers once hoped the twin balance-sheet problem would eventually solve itself. Everyone’s incentive has been to look away and hope economic growth cures all ills. It has not: profits are in fact shrinking at the large borrowers, many of them in the infrastructure, mining, power and telecoms sectors. But banks have cut credit across the board, including to small businesses.