MUMBAI: The government may be cheering the latest 8.2 per cent quarterly GDP growth, but concerns are being raised about overestimation of manufacturing output, putting a chill on India’s world-beating growth story.
And if the raised objections come from none other than a member of the RBI’s esteemed Monetary Policy Committee (MPC), the repercussions can be understandably damning.
“Does the new series represent a fuller description of the manufacturing value added, or is it an overestimation?” wrote Dr Ravindra Dholakia, RBI’s MPC member.
In an article Dholakia co-authored with R Nagaraj and Manish Pandya and was published in a periodical, the trio noted that a large observed divergence gave rise to “serious doubts about the veracity of the new (GDP) estimates.” Moreover, the reported high growth rates were at variance with other macroeconomic correlates, they wrote, indicating that our official statisticians probably overestimated manufacturing output, because of which FY19’s first quarter GDP crossed past the magical 8 per cent mark — a first during NDA’s tenure.
The GDP data released last Friday showed manufacturing sector expanded 13.5 per cent during the June quarter. “Specifically, the manufacturing sector estimates in the new series are in the eye of the storm, since its share in GDP at current prices is larger by about two percentage points (compared to the old series), and its annual growth rates are significantly higher — with a change even in the direction of growth in some cases,” they observed.
The new series of NAS with the base year 2011-12 shows that manufacturing sector’s share in GDP in current prices is significantly higher, and its growth rate much higher than those reported in the older series.
“The very basis of the change in the approach to data collection for estimating manufacturing GDP seems questionable. Hence the higher share and faster growth rate of manufacturing sector reported in the new GDP series seems to have little justification based on mere coverage of ASI,” they wrote.
Meanwhile, RBI maintained its full-year growth forecast at 7.4 per cent, while flagging risks from high oil prices and trade tensions escalating into a currency war.
Also, Dholakia has been advocating lower interest rates to support growth and was the sole member opposing rate hikes during MPC’s August meeting.