Great stuff, if it’s true: Editorial: Financial Express 1st Dcember 2010

GDP growth numbers, at 8.9%, have once again taken the analysts by surprise, even as the consensus was closer to the 8.5% mark, though the ministry of finance had earlier let it out that they were sanguine with the 8.8% growth number. Amid all the otherwise distressing news on the other fronts, the GDP growth number comes as a breath of fresh air. With the two so-called lean quarters showing growth of 8.9%, one cannot rule out growth closer to 9% by the end of the year, as the busy season comprises Q3 and Q4, which should be generally more active. We also have healthy stock markets, steady industrial growth, surplus capital inflows, a strong rupee, rising exports, orderly fiscal deficit, declining inflation rate, etc. Things can’t get any better; and it looks like it is time to open the bubbly. But maybe we should pause for a little bit longer for the party to begin. There are actually three points that are sort of perplexing.

The first is that some of the GDP numbers do not gel well. The IIP numbers for mining, manufacturing and electricity are lower than those in the GDP estimates, though, admittedly, the way of reckoning the same is different. Further, the construction sector seems to be booming at a time when the cement industry was in a dormant phase, which is not an aberration as the seasonal monsoon factor comes into play. These numbers are hard to reconcile. Given the track record of revisions, will there be some here? The second area is the statistical biases that will come into play from now on. Agriculture will do well in Q3 and Q4 because the performance was low last year and the ministry of agriculture is gung ho about performance and is already counting space in the warehouses for storing the procured cereals. In fact, while we may like to be happy over the resurgence in agriculture, going by the first advance estimates, the production numbers for cereals and some oilseeds like soybean are still lower than that in FY09. Hence, we may only be regaining lost ground. Industrial growth, on the other hand, has to come on top of very high growth rates witnessed from October 2009 onwards and will, hence, counter a downward bias notwithstanding healthy production numbers. The third issue is more serious. The revisions in Q1 estimates are hard to digest. Gross capital formation has increased from 31.2% to 35% and sector growth rates vary significantly across the spectrum. While the usage of the new WPI for deflating numbers is an okay enough explanation, 3.8% increase in capital formation still remains a mystery across revisions in numbers.