ET

New Delhi, Mar 25: As the world slows down, most Indians feel comforted that our 5.3% GDP growth in the fourth quarter of calendar 2008 was among the highest in world. 
But Surjit Bhalla, India's most flamboyant economist, says this is false comfort based on incorrect calculations. Citing OECD data, he says India actually had negative growth (- 3.6%) in Q4 of 2008, not the 5.3% claimed by the government.

Moreover, compared with 8.2% growth in Q4 of 2007 (again using OECD calculations), Bhalla says the total growth swing between the fourth quarters of 2007 and 2008 is a massive -11.8. On this swing criterion, Indian growth is far worse than in the US (-6.2%), UK (-8.4%) or European Union (-8.2%), though better than in Japan (-17.8%) or Korea (-28.8%).

Why are Bhalla's figures so dramatically different from Indian official figures? Our Central Statistical Organistion (CSO) calculates GDP growth comparing GDP in Q4 of 2008 with Q4 of 2007. But the world over, says Bhalla, countries calculate GDP growth quarter on quarter (Q4 against Q3 in this case), seasonally adjusting and annualising the estimate (multiplying QoQ growth by four). India does not use this standard global methodology, arguing that its agricultural data are notoriously volatile and rain-dependent.

There is something to be said for the government view. But it needs to be supplemented — if not supplanted— by an estimate that's closer to the international methodology, since that enables us to make more realistic international comparisons.

Instead of simply accepting Bhalla's calculations, I have done my own calculations of QoQ growth seasonally adjusted and annualised, using data available in Washington DC and the standard X-12 methodology for seasonal adjustment. Since agriculture is highly volatile, I have also listed non-agricultural annualised GDP growth (see the accompanying table).

On this basis, we find that overall annualised GDP growth in Q4 of 2008 was negative (-1.6%). This is not as bad as Bhalla’s cited estimate (-3.6%). But it is much worse than the 5.3% claimed by the government using the CSO methodology.

However, quarterly agricultural data are tentative, subject to large revisions, and extremely volatile. To grasp underlying growth trends, non-agricultural GDP growth is a far more reliable indicator. The impact of the global meltdown, monetary policy, or other policies show up well in non-agricultural growth, but not in agricultural growth (which depends far more on rainfall).

Non-agricultural growth in Q4 of 2008 was 3.5%. This was much better than the overall Q4 figure (-1.6%) arising from the plunge of agriculture in this quarter. But even non-agricultural growth was way below the government’s estimate of 5.3% growth.

So, Bhalla is correct is asserting that things are much worse than the CSO claims. The economic slowdown is much sharper than suggested by government data, and to that extent remedies need to be more powerful. But first, some caveats. Even overall growth (including agriculture) in Q4 of 2008 (-1.6%) was not the worst in recent years.

It was worse in Q1 of 2004 (-2.8%) and in Q4 of 2002 (-2.0%). There was no global meltdown in those quarters, yet growth was lower. In those cases a sharp downward shift in estimated farm output pushed down overall growth. This warns us to look instead to non-agricultural growth as a more reliable indicator.

Non-agricultural GDP growth in Q4 of 2008 (3.5%) was low, but by no means the lowest in recent years. It was lower in Q1 of 2001 (2.78%), Q1 of 2002 (3.0) and Q1 of 2004 (1.9%). So, while India is in trouble right now, non-agricultural data show it was worse in earlier periods that did not have a melt down. So, let's not view the current situation too darkly.