Rescue from Data’s Prison
It is hard to drive a car with the speedometer not working and windscreen fogged over. The same is true for the economy. Managing the economy is about reacting to signals and calibrating from the feedback. The Indian economy has two big problems today. First, the headline GDP growth number seems askew. Second, the policy shift to look only at the consumer price index (CPI) misleads. Little wonder that things seem to lack coherence.
Growth of GDP reflects what is happening across the economy: from jobs and livelihood creation to disposable incomes and, hence, domestic demand to savings and, hence, capacity to invest. There is a largish table alongside and apologies for its size. A few select parameters are presented and I leave it to the reader to surmise whether reported GDP growth is consistent with the rest of the data.
Gross value added (GVA) for private non-financial companies is taken from the RBI’s published sample data. That for 2015-16 is the sum over the first three quarters. It is easy to see that with the very widely divergent inflation rates, the real growth rate corresponding to these nominal rates is dependent on the choice of deflator. This is, perhaps, the reason why in times past, our national accounts system tried to first compute the real growth rate — based on quantity indices — and then computed the current price data!
A word on the jobs data is necessary. It is based on the Quarterly Employment Survey (QES) of eight select industries, published by the Labour Bureau and conducted by the National Sample Survey Organisation (NSSO) covering about 2,000 units. It was started at the time of the global crisis in 2008. This is the only more-or-less contemporary quality data on jobs, even if it is for eight select industries (including IT/BPO) as it permits inter-temporal comparison.
For 2015-16, the QES is available up to December 2015 and the data for the first three quarters has been annualised for the full year. Employment is a lagging variable — that is, it tends to create jobs a bit after economic conditions improve. It is, however, the final arbiter of growth. Which is why the mandate of the US Federal Reserve is “maximum employment with price stability”.
Now, from the table, 2014-15 seems to look better than the other three years, including 2015-16. But for corporation and income-tax collections, 2015-16 stands out. This may be a combination of lagged effects and administrative issues (maybe ‘excess’ collections to meet targets in 2013-14), which pushed growth down in 2014-15.
It is precisely because of the heterogeneity of data across sectors that GDP is vital as the unifying parameter. And that is why it is so difficult to understand what the headline growth figure of GDP for this year and the last is telling us. Has GDP growth picked up by nearly 2 percentage points, even as one does not see the effect in other critical data?
What is the purpose of public policy? High GDP growth rate is not an end in itself. But it is critical, since it leads to creating jobs and livelihood opportunities and improving the material well-being of the people. Between 2004-05 and 2011-12, the Indian economy created 7.2 million non-farm jobs and livelihoods each year, even as 4.2 million farm jobs were lost. That is the demographic and workplace transformation underway and which will continue in the decades ahead as young rural Indians move away from their parents’ avocation.
In 2010-11 and 2011-12, over 10 million non-farm jobs and livelihoods were added. In the next 15 years, we need to create about 14 million non-farm jobs and livelihoods each year for our educated and skilled youth. It can, and must, be done.
The QES data suggests that at this moment, we are not on this path. For the record, in 2009-10, 2010-11 and 2011-12, an average of 9,61,000 jobs were added each year in the eight select industries. When job and livelihood growth enters a respectable terrain, only then can we surmise that growth has revived. Not before that. The miasma that data has, unfortunately, drawn over our eyes must be cleared.