Monday, July 6, 2015

India's growth fallacy

                                   K R Sudhaman

        India's growth rate may be faster than China, but it is a fallacy to say we are growing faster

Common sense is nonsense in Statistics as the saying goes. An oft repeated example in this regard is that a group of people including a statistician wanted to cross a river. When the group was vaciliting whether to cross the river or not for fear of getting drowned, the statistician came out with a bright idea. He calculated the average height of the group, which was 5.4 feet and the average depth of the ritver, which was 4.5 feet. He said the river can be easily crossed as the average height of the group was higher than average depth of the river. At one point the river's depth was over 8 feet and all got drowned including the statistician.

The interpretation of GDP growth figures is no different. China, that has adopted export-led growth since 1979 has recorded double-digit GDP growth for three decades. Lately it has slowed down due to difficult global situation at 6.8 per cent this year. India, which had been growing at hindu rate of 3-5 per cent for decades got some push after opening up of the economy in 1991 and the best it achieved was between 2004-08, averaging over 9 per cent. Since then India has slowdown due to domestic and global reasons. This year there is some revival clocking 7.3 per cent in 2014-15. This year it is projected to grow anywhere between 7.5-8 per cent.

India's growth rate looked higher than China this partly due to a new method of calculation adopted this year. This has pushed up India's growth rate higher by 2.2 per cent. The GDP growth, which was earlier calculated based on factor cost, now has been changed to constant prices to take into account gross value addition in goods and services as well as indirect taxes. Also, the base year has been shifted from 2004-05 to 2011-12. One need not quarrel over this as the growth calculation has now been aligned to global norms.

But more importantly what has not been told is that, India's gross domestic product in absolute terms is just about $2 trillion against China's GDP of a little over $10 trillion.

So even if India grew by 10 per cent, the country would be growing only by $20 billion in a year in absolute terms. Whereas China at even 6.5 per cent GDP growth, would be growing by around $70 billion in absolute terms. A marginally higher growth means nothing but a statistical jugglery. India has a lot of catching up to do with China and that is the real growth story.

The absolute numbers are important for calculating per capita income which was around $1500 in India in 2013 as against China's $6800 in 2013. China's per capita is more than four times that of India's.

There are other indicators as well. Consumption is perhaps the largest component in GDP. This indicator clearly show all is not well with the Indian economy. There is rural distress and this is one of the reasons that consumption demand is not picking up for the economy to growth as evident from the sale of two-wheelers, tractors, small commercial vehicles,cars and fast moving consumer goods incuding white goods. This is the reason Reserve Bank of India has flagged the issue in its monetary policy on June 2.

In fact, China is the only country in the world, which has grown rapidly in double digits on a sustained basis for decades. No other country including so called miracle countries like Japan, South Korea and Singapore have grown as rapidly as China on a sustained basis. Even if India grows 10 per cent and China at 6 per cent, it will take 4-5 decades to catch up with Chinese economty, which is not going to be easy considering the kind of democratic polity India has.

(K R Sudhaman, who has over 40 years experience in journalism, has been editor in Press Trust of India, TickerNews & Financial Chronicle)

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