India’s economy grew 7.3% in 2014-15, according to a controversial new formula that covers a raft of activities from farm-level livestock to mega infrastructure projects. Revised statistics showed that ‘real’ or inflation-adjusted growth rate for January to March 2015 was at 7.5%. However, growth during October-December 2014 has been revised downward to 6.6% from 7.5%, casting fresh doubts over the new method, which has stumped both experts and the uninitiated. For instance, many experts have pointed out that there are anomalies as manufacturing shows an estimated growth rate of 7.1% for 2014-15, which under the index of industrial production (IIP) data for factory output was 2.3%. According to official statisticians, the IIP or factory output counts the number of units produced and does not distinguish between, say, the value of a luxury car and an entry-level hatch-back. It is possible that factory output would have remained stagnant over a period of time, but its value would have multiplied.
Experts who have cautiously backed the data say that the data from other sources such as household spending, corporate earnings and tax collections and sales of goods and services were weak and do not mirror the revival trends shown in the GDP numbers. According to the national income data for 2014-15, private final consumption expenditure (PFCE) — a gauge to measure household spending — grew 6.3% (at 2011-12 prices) in 2014-15 compared to 6.2% growth in the previous year, reflecting sluggish sales of consumer durables such as cars, mostly bought through loans, during the last fiscal year. The data also showed that investment hadn’t picked up sharply during 2014-15. As a proportion of GDP, gross fixed capital formation stood at 30% (at constant prices), down from 30.7% in the previous year— a sign that companies have not added too many capacity lines during 2014-15.
That said, there are signs of investment and consumer spending picking up. Domestic passenger car sales grew 18.14% in April, the fastest in 30 months. Cargo handled at major ports also grew 4.4% in the last quarter of 2014-15 as compared to 1.3% in the year-ago period — perhaps reflecting greater manufacturing activity leading to greater imports of raw material and machinery. Speedier project clearances and lower loan rates can aid the recovery. The ball is now in the government’s and the RBI’s court.