GDP num­bers cred­i­ble, but In­dia needs to im­prove price indices: IMF

The Pak Banker - - 6BUSINESS -

The In­ter­na­tional Mon­e­tary Fund (IMF) on Thurs­day came to the res­cue of In­dia's sta­tis­tics depart­ment amid con­sis­tent crit­i­cism of new gross do­mes­tic prod­uct (GDP) num­bers, hold­ing that the coun­try's eco­nomic growth fig­ures look cred­i­ble.

How­ever, it prod­ded the Cen­tral Sta­tis­tics Of­fice to come out with the pro­ducer's price in­dex (PPI) in place of retail and whole­sale price indices, as the price de­fla­tor to ar­rive at the real GDP num­ber. Many govern­ment and pri­vate econ­o­mists have been ques­tion­ing the new GDP num­bers, in­tro­duced af­ter In­dia shifted to a new way of cal­cu­lat­ing it based on an in­ter­na­tion­ally com­para- ble method­ol­ogy and a base year of 2010-11. Crit­ics com­plain that the new se­ries por­trays an overly ro­bust pic­ture of the In­dian econ­omy while other macro in­di­ca­tors such as bank credit growth, ru­ral de­mand and fac­tory out­put do not sup­port such a de­pic­tion.

"The nom­i­nal GDP num­bers are very much a bet­ter re­flec­tion of what is go­ing on in the econ­omy. We are also study­ing some of the price sides of the fig­ures. We are very pleased that In­dia is mov­ing away from its fas­ci­na­tion with the pre-his­toric WPI (Whole­sale Price In­dex) and GDP at fac­tor cost. But In­dia has to do a bit more work on its price indices," Paul Cashin, head of the IMF team for In­dia, said on the side­lines of an event to re­lease the book Tam­ing In­dian In­fla­tion, pub­lished by the IMF.

"We would like to see a proper pro­ducer's price in­dex... They (Cen­tral Sta­tis­tics Of­fice) are work­ing on it and may in­tro­duce it in a year or so. That will be a wel­come ad­di­tion. With a PPI, it will be a long step for­ward," he added.

In­dia is us­ing retail (Con­sumer Price In­dex or CPI) and whole­sale (WPI) price in­fla­tion num­bers as prox­ies for PPI at present to de­flate the nom­i­nal GDP to ar­rive at the real GDP.

How­ever, Cashin in­sisted that even with its im­per­fect price indices, the real GDP num­bers are cred­i­ble. "The broad pat­tern of what we see still re­mains the same even af­ter change in the GDP mea­sure­ment method. In­dia is ac­cel­er­at­ing with a smaller out­put gap," he said.

"Th­ese fig­ures are care­fully pro­duced by CSO. We are sup­port­ive of their ef­forts," Cashin added. On the govern­ment stick­ing to the fis­cal deficit tar­get of 3.5% of GDP for 2016-17, Cashin said th­ese are a cred­i­ble set of num­bers. "But not­with­stand­ing that there are clear head­winds in­clud­ing the pay com­mis­sion and re­cap­i­tal­i­sa­tion of state banks for which the govern­ment has al­lo­cated re­sources. We are happy that fis­cal deficit is com­ing down. They are stick­ing to the tar­get."

Sup­port­ing the IMF stand that the Re­serve Bank of In­dia (RBI) needed to main­tain a tight mon­e­tary pol­icy stance, Cashin said RBI gov­er­nor Raghu­ram Ra­jan would also need sup­port from the cen­tre to check in­fla­tion.

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