India's GDP Revisions Raise Serious Doubts

[RiazHaq]

http://www.riazhaq.com/2015/04/indias-new-gdp-figures-modi-takes-bs.html

"The estimated “evacuation (defecation) rates” are 0.3 kilograms per day for goats and 0.8 kilograms per day for sheep. The study, titled “Positive Environmental Externalities of Livestock in Mixed Farming Systems of India,” was conducted jointly by the Central Institute for Research on Goats, in Makhdoom, Uttar Pradesh, and the National Center for Agricultural Economics and Policy Research in New Delhi. With all those “droplets” added in, the value of India’s livestock sector in the new GDP series is 9.1 billion rupees, or $150 million, higher than it was in the old series." Wall Street Journal on India's GDP Revisions

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Animal droppings (BS) is just one of many innovations of Central Statistical Office (CSO) that are being used to support India's claim to be growing faster than China. Until early February, when CSO changed the way it measures economic activity, India was enduring its weakest run of growth since the mid-1980s. Now it is outpacing China, having grown an annual 7.5% in the fourth quarter of last year, reports Business Standard.

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[TD="class: tr-caption, align: center"]Indian Livestock GDP Calculations. EOG=Edible Offals, Glands. Source: CSO Via WSJ[/TD]
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While India's boosters in the West are not only buying but applauding the new figures, Indian policy professionals at the nation's Central Bank and the Finance ministry are having a very hard believing the new and improved GDP brought to the world by Indian government. Dissenters include Morgan Stanley's Ruchir Sharma, an Indian-American, who has called the new numbers a "bad joke" aimed at a "wholesale rewriting of history".

Based on the latest methodology, it is claimed that the Indian economy expanded 7.5 percent year-on-year during the last quarter, higher than 7.3 percent growth recorded by China in the latest quarter, making it the fastest growing major economy in the world, according to Reuters. Is it wishful thinking to make Indian economy look better than China's?

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[TD="class: tr-caption, align: center"]India GDP Revisions. Source: Financial Times[/TD]
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The GDP revisions have surprised most of the nation's economists and raised serious questions about the credibility of government figures released after rebasing the GDP calculations to year 2011-12 from 2004-5. So what is wrong with these figures? Let's try and answer the following questions:

1. How is it possible that the accelerated GDP growth in 2013-14 occurred while the Indian central bankers were significantly jacking up interest rates by several percentage points and cutting money supply in the Indian economy?

2. Why are the revisions at odds with other important indicators such as lower industrial production and trade and tax collection figures? For the previous fiscal year, the government’s index of industrial production showed manufacturing activity slowing by 0.8%. Exports in December shrank 3.8% in dollar terms from a year earlier.

3. How can growth accelerate amid financial constraints depressing investment in India? Indian companies are burdened with debt and banks are reluctant to lend.

4. Why has the total GDP for 2013-14 shrunk by about Rs. 100 billion in spite of upward revision in economic growth rate? Why is India's GDP at $1.8 trillion, well short of the oft-repeated $2 trillion mark?

Questions about the veracity of India's economic data are not new. US GAO study has found that India's official figures on IT exports to the United States have been exaggerated by as much as 20 times.

Similarly, French economist Thomas Piketty has argued in his best seller "Capital in the Twenty-First Century that the GDP growth rates of India and China are exaggerated. Picketty writes as follows:

"Note, too, that the very high official growth figures for developing countries (especially India and China) over the past few decades are based almost exclusively on production statistics. If one tries to measure income growth by using household survey data, it is often quite difficult to identify the reported rates of macroeconomic growth: Indian and Chinese incomes are certainly increasing rapidly, but not as rapidly as one would infer from official growth statistics.

This paradox-sometimes referred to as the "black hole" of growth-is obviously problematic. It may be due to the overestimation of the growth of output (there are many bureaucratic incentives for doing so), or perhaps the underestimation of income growth (household have their own flaws)), or most likely both. In particular, the missing income may be explained by the possibility that a disproportionate share of the growth in output has gone to the most highly remunerated individuals, whose incomes are not always captured in the tax data." "In the case of India, it is possible to estimate (using tax return data) that the increase in the upper centile's share of national income explains between one-quarter and one-third of the "black hole" of growth between 1990 and 2000. "

T.C.A. Anant, the chief statistician of India, has told the Wall Street Journal that “there’s a large number of areas where we have deviated (from the United Nations’ latest guidebook on measuring GDP) for a large measure, because we are simply, at the moment, unable to implement those recommendations.”

http://www.riazhaq.com/2015/04/indias-new-gdp-figures-modi-takes-bs.html

 

[RiazHaq]

Former central bank governor Dr Y V Reddy once quipped to me that while the future is always uncertain, in India even the past is uncertain, given how often the government revises economic data. Even by that standard, however, the dramatic upward revision of the GDP growth rate is a bad joke, smashing India’s credibility and making its statistics bureau a laughing stock in global financial circles.
The new and not-so-funny numbers show that the Indian economy grew at a pace of 6.9% in the last fiscal year, a claim that is fantastic in the extreme. Many Indian economists have set out to show that the new growth numbers for the economy as a whole simply don’t add up, as a sum of the parts. Every piece of data — from the tepid increase in corporate revenues to imports, credit, rail freight and auto sales — points to a much lower growth figure, probably closer to the old estimate of 5%.
Surprisingly, for a country obsessed with its GDP growth rate, there is not much outrage at this travesty, either in public or at cocktail parties. In the past, India’s habit of revising economic data was confined to relatively minor tweaks, but this latest update is a wholesale rewriting of history. In the international financial community, no one had questioned the veracity of India’s economic numbers, until now.
This makes India look bad even compared to China, which many analysts have long suspected of massaging GDP figures to show steady growth. But the same sceptical analysts admit that when China manipulates its numbers, it does so carefully and only when the actual growth rate falls below its official target, as it has of late. The authorities seem to know exactly what they are doing. India’s new GDP data clashes even with the pronouncements of some government and central bank officials, suggesting that the left arm doesn’t seem to know what the right arm is doing.
The whole episode is reinforcing the bad rap India gets for poor governance standards. To be sure, many emerging nations including Turkey and Nigeria have issued flattering upward revisions of their growth data in recent years, but generally without eliciting peals of laughter. Last year, Nigeria issued a revision showing that the economy was nearly twice as large as previously reported, but it was widely accepted because the new methodology was well explained and had the endorsement of the International Monetary Fund.
The IMF in fact recommends that, every five years, countries update the base year they use to calculate the pace of growth in the economy. The idea is to capture the impact of new growing industries, and Nigeria hadn’t updated its base year since 1990. India’s last revision came in 2010, so this one came on schedule. Only the statistics bureau clearly rushed it into print, without conducting even an elementary ‘smell test’ to ensure that the new numbers square with the reality on ground. One clear sign of the bureau’s haste to publish is the fact that it released revised data for only the last two years, making it impossible to see the long-term trend for India’s growth rate.
Nobody really believes that the Indian economy grew at anywhere close to 7% last year, and shockingly no one is willing to put an end to this nonsense. When India delivers its budget on February 28, officials are likely to claim that economic growth in the coming year will accelerate to around 8% — a figure based on the new series. A forecast based on dodgy numbers will only cast doubt on India’s claim to be the world’s fastest-growing large emerging market, though that claim could easily prove true in a couple of years, based on credible numbers.


http://blogs.timesofindia.indiatimes.com/toi-edit-page/6-9-growth-world-laughing-at-this-bad-joke/

 

[RiazHaq]

Cautioning business against getting “disillusioned so fast”, Ratan Tata on Friday asked it to give ‘support and opportunity’ to Prime Minister Narendra Modi for delivering on his promises.

Noting Modi government had not completed even one year in office, Tata said, “All of us should understand that it's a new government, and we need not get disillusioned and dissatisfied with so fast.” The comments come at a time when various business leaders, including HDFC Chairman Deepak Parekh, Marico Group's Harsh Mariwala and the new CII President Sumit Mazumder, have talked about a need for the new government's reform measures to start reflecting on the ground.

“There's a great deal of hope in the inspirational leadership of Modi. He is still in the early stages of defining what he hopes to deliver a new India. The implementation hasn’t really taken form this year. But we still have to give him the opportunity to implement what he has promised," Tata said here. He was replying to a query on his views about the economy under the new regime during the convocation of the 'Mumbai International School of Business Bocconi'.

Expressing confidence that the Prime Minister will deliver on his promises, Tata said: “We're all hopeful that the country will move forward in the manner that Modi predicted. We really need to support it if we need to have a new country and outlook both internationally as well as domestically.”

He added: “In short, we're all hopeful that the country will move forward in the manner that Modi predicted."

Mazumder said yesterday at a press conference in the national capital that the Modi government has taken forward reforms in various areas but issues like land acquisition were still coming across as key bottlenecks for implementation of large projects, while the industry has also been experiencing obstacles with regard to the Companies Act.

Mazumder also highlighted that although progress has been made in reforming labour laws, a lot needs to be done, while there are "still certain factors which need to be resolved in the ease of doing business".

The Prime Minister, as also other top government leaders, have asserted that all efforts are being made to improve ease of doing business.




http://www.business-standard.com/article/pti-stories/don-t-get-disillusioned-support-modi-ratan-tata-to-india-inc-115041700862_1.html

 

[RiazHaq]

On popular demand, I post a graph of the difference between the GDP data and the RBI Balance of Payments (BoP) data. This is referencing my posts on how the Q4 data has been ‘fudged’ and India is likely to have seen GDP contraction (in real terms, that is, accounting for inflation). Read: Has India Plunged Into Recession? GDP Data Fudge Reveals Details and India *HAS* Seen Negative GDP Growth, BoP Confirms Data Fudge

(Click for a larger picture)
As you can see the March 2012 quarter is very strange – Exports are larger in the MOSPI figure than the BoP figure tells us, and GDP imports are much smaller than BoP data.
But there’s an important takeaway.
Exports may have been understated in GDP figures in the first three quarters of this year, by about 65,000 cr. The discrepancy in Q4 is about 87,000 cr. So the difference, for the whole year, is a manageable 22,000 cr. You might be able to explain that by saying that they’ve stuffed the corrections into the last quarter. (I don’t believe that – they keep revising earlier quarter numbers with every GDP release – so if you update the past figures, you’re not allowed the excuse that you stuff corrections into the last quarter).
But Imports remain a mystery. Even if you account for stuffing (Imports have been overstated in the GDP in the Sep and Dec quarters) the difference for the full year, between the MOSPI GDP Data and the RBI BoP, is about 120,000 cr., which is a fairly large number to miss.
The difference in imports is so large that even if you rejig for past quarter misses, it will still result in much lower GDP growth. Reworking the numbers for a (-120,000 cr.) net export figure – negative because we imported more than we exported – we still get a nominal growth number of about 4.5%. Subtracting inflation of 7% and, like we’ve talked about, a GDP contraction. Even if we eke out positive growth for the year, It’s not looking good for the last quarter.
I’ve also been told that I’m being silly for believing any of the numbers in the GDP releases, since they are largely figments of people’s imagination. While I hope that is not true, it’s not a theory that can be written off, so please use appropriate pinches of salt.
http://capitalmind.in/2012/07/gdp-data-fudge-vs-bop-recent-differences/

 

[RiazHaq]

#India Worst performing stock market? This is the end of the Modi bubble for FIIs

Is PM Narendra Modi running out of luck? He had famously boasted being a lucky Prime Minister while seeking votes during the Delhi elections. The context, of course, was international oil prices had less than halved and that seemed to have brought all round uptick in economic sentiment, what with the stock markets soaring to new highs early 2015. Consensus among global FIIs was that they will remain overweight India as compared to other markets like China, Brazil, South Korea, Taiwan and Russia. But everything seems to be reversing over the past month and a half.
Suddenly the FIIs, with a cumulative investment in Indian stocks of about $300 billion at market value, are looking at other emerging stock markets for returns and no longer treat India as the most preferred destination as they did last year, and even the beginning of this year. FII net outflows gave been of the order of Rs 12,500 crore over the past month. The stock market index has seen the biggest correction of 10 percent in a short time. This has caused speculation whether the markets are slipping into a bear phase.

But what is indeed worrisome is India is probably the worst performing stock market among emerging economies this year. This is in sharp contrast to the view taken by the big FIIs that the Modi government reforms could trigger a multi-year bull run in India. Now the same FIIs are shifting the weightage of their global allocation to China where the stock markets have shown 30 percent growth since January. India's Sensex growth remains in negative territory. Even FII inflows, which primarily influence market movement, are flat to negative since January.
Worse, now FIIs also seem to prefer oil exporting markets like Russia and Brazil, both of whom had fallen out of favour after the global oil prices had more than halved, badly affecting their revenues. Now the FIIs believe that oil prices are moderately correcting and returning to oil exporting markets like Russia and Brazil makes sense. This view is buttressed by another major consideration. They feel as the US economy recovers and the prospect of monetary tightening by the Federal Reserve brightens, the dollar would strengthen in the short to medium term.

The Economic Times has just reported a survey of top CEOs and the majority of them suggest that demand is depressed. "The bonhomie and cheer that greeted the arrival of the Modi government is replaced by a sombre mood and a grim acknowledgement of the realities of doing business in India," reports ET, as it captures the sentiment of the CEOs. Little wonder that this is reflecting in the behaviour of the stock market and currency. The largest engineering conglomerate L&T had said some of its plants are lying idle as demand for capital goods is very weak. The Aditya Birla Group had deferred its revenue target of $65 billion by 3 years, to 2018.
These are not good signs for the economy and both the stock market and currency will reflect this in the months ahead.

http://www.firstpost.com/business/worst-performing-stock-market-end-modi-bubble-fiis-2243556.html

 

[RiazHaq]

Summary

Months after the release of the new GDP methodology with much higher numbers, it still remains wildly inconsistent with numerous other indicators, pointing to continued economic slack.
The revised GDP numbers particularly pose dangers for monetary policy decisions, as much of India expects the RBI to cut rates.
RBI Governor Raghuram Rajan and the government’s Chief Economic Adviser Arvind Subramanian, two trained economists, remain 'puzzled' with the new numbers.
Part I of this article series looked at the change in the methodology of calculating India's GDP that literally overnight transformed an 'ailing' economy into one of the best performing economies globally. The problem is not with the methodology per se. The methodology is the same that is globally accepted; the problem is with the missing comparable numbers as per the older methodology, and the missing longer term historical data for the new one (not necessary that historical data beyond three years be made public, but it should at least be made available to statisticians doing the exercise and to other approved authorities for scrutiny/confidence building).
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Presented here are some of the related data over the years to get a comprehensive picture. The Index of Industrial Production (IIP) data reveal two insights: Post 2008, there may have not been a sustainable recovery but a sharp bounce back in 2011 which can be attributed to a typical inventory bounce back as normally seen after a period of sharp decline like the one during the 2008-09 period. In a slowdown, cut back in production is multiplied by the effect of sharp inventory reductions, making the situation even worse. An inventory bounce back is the opposite of it. With signs of recovery, companies start filling up shelves again faster than the real demand. The Economist blog, referred in Part I, first suggested that based on the IMF's World Economic Data following market prices, India grew faster than China in the April-March 2010-11 financial year of India's vis--vis China's calendar year of 2010. This observation synchronizes well with the inventory bounce back of IIP numbers observed in the following IIP chart.

The IIP for March, reported on 12th May, came in at a five-month low of 2.1%, making the yearly average for 2014-15 at 2.8% compared to a contraction of 0.1% for 2013-14.

True, there are masquerading voices within India with political inclinations who find nothing wrong in this overnight cure of the ailing economy. The same voices blamed the last government for the economic slowdown, which now becomes imaginary, as per the new methodology. The falling earnings (the last quarterly earnings of 101 companies, that declared results by 27th April or so, fell by 9.23%) and the continuous deterioration of balance sheets of companies, especially banks, convincingly debunk any such hypothesis. It also exposes the charade behind the new GDP numbers. Merely stating how the IIP numbers simply do not matter anymore in the methodology, directly or indirectly, may not be the whole truth. The deterioration of balance sheets is the root cause for the increasing NPAs in Indian banks, mostly state-owned ones, without any certainty as of now on whether or not NPAs have reached a saturation level. This is what RBI Governor Rajan said on NPAs on 17th April:

"The non-performing assets have been growing. I'm hopeful that we are near the peak or that we have even passed the peak, but we won't know until it is truly clear with the passage of time."

Similarly, a look at India's trade data shows a sharper slowdown (21%) in exports than in imports (13%) for the last reported month (March 2015). There is an overall decline in both for the year too.

http://seekingalpha.com/article/3180526-myth-or-reality-scrutinizing-indias-revised-gdp-numbers-and-secular-bull-market-part-ii