Res­cue from Data’s Pri­son

The Economic Times - - The Edit Page - Sau­mi­tra Chaud­huri

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.

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