An increase in real GDP is interpreted as an unequivocal thumbs-up that an economy is doing well. But, extruding from the command rooms of gifted political players, annual growth stats can be misleading. Quarterly growth stats do not stand up to prima facie scrutiny, either.
Take the GDP of 13.5% for the first quarter of this year. Every pundit, economist, and financial institution had predicted a double-digit growth for the quarter. The RBI had forecast a growth of 16.1%. The GDP growth of 20.1% in Q1 2021 had been absurdly stellar but understandable, thanks to 2020’s low-low growth base established by the stringent lockdowns.
In effect, 13.5% (2022) is standing on the shoulders of 20.1% (2021), which stood on the drooping shoulders of -23.9% (2020). It’s a rickety totem pole of iffy numbers.
A quarter as crummy as Q1 2020 was the perfect storm to hit the “GDP-ism”—a cautionary word coined by Swiss economist Jean-Pierre Lehmann—that India suffers from but would have the world believe is its super strength.
A 13.5% growth is exceptionally high—almost double the economist’s dream of a yearly 7%—and wobbles upon scrutiny of its contributing data. In point of fact, the 2022 growth rate is a mere 3.8% above the 2019 pre-pandemic level.
This year, Government Final Consumption Expenditure has fallen to 11.2% from 12.6% last year. Manufacturing stands at 4.8%, a tenth of the 49% during the same quarter last year. In mining, the first quarter’s gross value added (GVA) growth is 6.5%, a third of the 18% a year ago. The GVA growth in construction is 16.8%, less than a fourth of the 71.3% last year. Contact-sensitive sectors like trade and hotels slid from 34.3% in 2021 to 25.7% this year.
Beyond all these mystifying stats is a truism: that a growing economy is flagged by a quarterly GDP that is higher than the preceding quarter’s. It is also axiomatic that if a quarter’s GDP is less than the previous one’s by even a tittle, then the economy is shrinking. There’s no argument that can morph it into a positive.
The 2020 growth rate (the average of its quarters) was -7.3%—the consequence of a gobsmacking first-quarter growth rate of -23.9%. In 2021, the quarters contracted from a high of 20.1% (Q1) to 8.4% (Q2) to 0.4% (Q3) to 1.6% (Q4). 2022 began with a banzai 13.5%, but the RBI anticipates a cascading slowdown in the remaining three quarters: 6.2% in Q2, 4.1% in Q3, and 4% in Q4.
India is using anomalously high Q1 growth to boost the following three low quarters and then smugly posting a high yearly average—this is unsustainable prestidigitation. Economists know that the 2020 low-base benefit is not infinitely exploitable. Amply cautious, therefore, FII forecasts are not accounting for a high Q1 2023 growth.
All one can see in the pellucid light of day is economic enervation, not muscularity. If this—a crisis in those weary strata that the vast majority of citizens inhabit—is not communicated to the people emphatically and explicitly, we will be looking down the long barrel of the ordinance of social chaos.
But governments, across ideological divides, do not like to be saddled with tumult, no matter that it might be of their own making. One of the ways of avoiding the pain of arithmetical truth is ‘Datenmassierung’, or data-massaging. All governments do this.
It is comforting to realise that flaky data (and even opaque incrementation and decrementation by decimals) is vulnerable to expert inspection. The problem is that the other kind of data-massaging, beloved of politicians—the camouflaging of worrisome numbers in the demagoguery of sanguinity—is less pregnable.The Indian citizen is routinely blitzed by deceptive media gung-ho hard-selling tweaked data. Over the past eight years, the aam janata has been inundated by data that it doubts but has learnt to live with.
Attempts to ‘improve’ data almost always end up excluding, altering, retrofitting, or refashioning data. The impulse and the incentive here are political, not economic.
In fact, data-massaging in the service of policymaking is fundamentally anti-economy. Wrong, or wrongly aggregated, GDP statistics—are akin to a falsified growth trajectory in a corporate chart: they will, eventually, run the establishment into the ground. Monkeying numerically with the economy ends up making it jump through political hoops. Maintaining data deception calls for more and more lies, until they finally clump up and clog the river’s flow—and the economic flowchart.
The flow of composited big bad data overwhelms everything not only downstream but also backflows ruinously upstream.
If the super mountain of bytes known as the GDP is erroneous, or has been manipulated, every single thing that has referenced it will be faulty: fund allocations, microeconomic understanding, capital expenditure, policies big and small. And this is for starters.
In the background, however, lurks a bigger, more fundamental doubt about the nature and purpose of GDP. Senior economic journalist David Pilling wrote: “The beauty of gross domestic product is its single figure. It squishes all of human activity into a couple of digits, like a frog jammed into a matchbox.” How can the GDP of even stable, small, superlative economies approximate that infinitely complex thing called wellbeing? American economist Simon Kuznets, who, in 1937, presented the original GDP formulation to the US Congress, did not conceive of GDP as anything more than a number representing economic production by government, companies, and individuals.
He also warned, nearly three decades later: “Distinctions must be kept in mind between quantity and quality of growth, between its costs and return, and between the short and the long term. Goals for more growth should specify more growth of what and for what.”
India is guilty of two things: thinking that national wellness can be inferred, to quote Kuznets again, “from a measurement of national income” (GDP); and what Joseph Stiglitz called the “fetishisation of GDP”.
Kajal Basu
Veteran journalist