India grows faster than China, farm sector a worry
India’s economy grew at 7.3% in 2014-15, the government said Friday using a new formula that covers a raft of activities from farm-level livestock to mega infrastructure projects even as questions loomed over the new methodology.
Revised statistics showed “real” or inflation- adjusted growth rate for January to March 2015 was 7.5%, making India the world’s fastest growing major economy outpacing China’s 7% growth during the same period.
However, g rowth during October to December was sharply revised downward to 6.6% from 7.5%, casting fresh doubts over the new method that has stumped both experts and the uninitiated after it was first released in January.
The latest data showed that at 7.3% growth in 2014-15, India’s gross domestic product (GDP) — the total value of all goods and services produced in the country — was a tad lower than the 7.4% projected in February.
Farm income, however, contracted 1.4% during the March quarter, hit by a bad winter of hailstorms and unseasonal rains. Chances of a below-normal monsoon for the second consecutive year have precipitated worries.
A strong agriculture sector, which accounts for 14% of GDP but supports about half of the country’s population, is critical to sustaining the recovery in Asia’s third largest economy.
The data indicated that the economy was in “recovery mode”, finance minister Arun Jaitley said. “Manufacturing (which grew 8.4% in January-March and 7.1% in the whole year) and services indicate that we have a potential to grow at 8-9% and beyond,” Jaitley said.
At R125.4 lakh crore ($2.02 trillion as on March 2015), India’s GDP has officially crossed that $2-trillion mark, making it the world’s 10th largest economy. India’s annual per capita, or average income (in current prices), stood at ` 87,748 from ` 80,388 the previous year.
Despite the current slowdown, however, at $10.3 trillion China’s economy is five times bigger than India’s, while the US remains the world’s largest economy at $17.4 trillion.
In January, the Central Statistics Office (CSO), using a new method, said India’s real or “inflation adjusted” GDP in 2013-14 grew 6.9% instead of the earlier 4.7%.
The new series uses 2011-12 as the “base year” instead of 2004-05 as earlier. While the base year of the national accounts is changed periodically to factor in structural changes in the economy, it is the new formula that has baffled analysts.
Experts say data from other sources such as household spendings, corporate earnings and tax collections and sales of goods and services are weak and do not mirror the revival trend shown in the GDP numbers. Many have pointed out anomalies such as manufacturing showing estimated growth of 7.1% for 2014-15, which under the index of industrial production (IIP) data for factory output was 2.3%.
According to officials, IIP, or factory output, counts the number of units produced and does not distinguish between, say, the value of a luxury car and an entry-level hatchback. It is possible that factory output remained stagnant over a period of time but its value multiplied.
Under the new method, financial sector coverage has been expanded to include stock brokers, stock exchanges, asset management companies, mutual funds and pension funds, as well as the regulatory bodies Sebi, PFRDA and Irda.