Economy growing but not growing – 100 shades of growth story

Economy growing but not growing – 100 shades of growth
Economy growing but not growing – 100 shades of growth

Prof. R Vaidyanathan

Professor of Finance – IIM-Bangalore

When the first quarter results were announced by Central statistical Organisation –there were a flurry of reports in main stream media [MSM]. Some claimed that economy has slowed down and some screamed that it has picked up. Obviously common man is confused and depending upon whether you are a Modi man or Rahul man you use these data to appreciate or attack the Government.

Basically performance can be assessed based on

  • Past data
  • Target or Budget
  • Performance of others

Of these again past data can be last quarter performance or the same quarter of last year. If it is last quarter it is called sequential and if it is same quarter of last year it is called Year on Year [YoY]

Other than these another element which has come in these days is the “expectations” of analysts or consulting firms or fund managers.

These above mentioned methods are common for companies or countries or even for your school child.

Tell your child that you get more than last exam or tell him a target of 98% since that is cut-off to enter many colleges [In Delhi one college in commerce stream announced 100% as cut off] or tell the child to score one mark more than neighbour’s sonJ

Let us look at our data. Our current financial year is 1st April of 2015 to 31st March 2016. This tells us that if you compare 1st quarter of 2015/16 that is 3 month period of April-June one finds that the GDP at 2011-12 prices [constant prices—also known as real growth rate] has grown at 7%. Compared to the previous quarter [Jan-March 2015] at 7.5%. So the performance has deteriorated. But if you take the first quarter of last year namely April-June of 2014 –which was 6.7 % then it has shown improvement.

So the debate is to compare with previous quarter or the last year’s same quarter. Both have got virtues in terms of comparison.

 Table 1. Gross Domestic Product [GDP] Quarterly Growth – in %

GDP Quarterly Growth Rates
  At Factory cost 2004-05 Prices At 2011-12 Prices
2011-12 2012-13 2013-14 2014-15 2015-16
Q1 7.5 4.5 4.7 6.7 7
Q2 6.5 4.6 5.2 8.4
Q3 6 4.4 4.6 6.6
Q4 5.1 4.4 4.6 7.5


The other issue is comparing it with target. It used to be told by some agencies and Government that we will achieve 7.5% and so compared to that our performance has not been good

Another dimension is Gross value added which is similar to GDP –GDP is Gross value added + indirect taxes-subsidies. GVA did rose to 7.1 % from 6.1%. This is a puzzle since the collection of indirect taxes has increased substantially and subsidies have been cut down. So if GVA has shown improvement with previous QR then GDP should have shown more improvements.

Other than these there are other indicators like Core sector and its growth.

The core sector as defined by Ministry of Commerce and industry consists of Coal; Crude Oil; Natural Gas; Refinery Products; Fertilizers; Steel; Cement; Electricity. These eight industries constitute 38% of weight of Index of industrial Production or IIP. The base year used by Ministry is 2004-2005.

We find that overall index growth rate in July 15 compared to June 15 is 1.1% where as in June 15 it was 3.0% compared to May 2015. The fall is mainly due to natural gas and steel.

Many consider that the core industry represents economic activity in Industrial production and so monitoring them is critical. Compared to other countries we are growing very well. Most countries of Europe are less than 5% and even China is struggling to get an annual 8%. We need be neither alarmed nor complacent.

At least next time if someone says Govt is not doing well from Economic growth point of view—you know the important issues about GDP and GVA; Base Year, YOY or Sequential; Core sector or all sectors.

The range of shades should make you argue for both sides of the debating table.

Views are personal.

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Prof R. Vaidyanathan

Cho S Ramaswamy Visiting Chair Professor of Public policy[CRVCPPP]

Sastra University

An expert in Finance and a two times Fulbright Scholar, Prof. R Vaidyanathan is a much sought after author, speaker and TV commentator on all items related to Money and Finance.
R Vaidyanathan
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  1. Indians are known for their unloving criticism or uncritical love; of late India is known for too many arm chair critics and excessive analysts who question every action done with good intention especially if those arm chairs critics or their lobby are not getting any exclusive benefits and they are not able to explain or fit what is happening into definitions that they already know.

    You are correct we, I mean India, is doing well under the given circumstances. I wish you had used million shades instead of 100 shades.
    Come back at least mentally to Ranganathan street and see the shades of blouses in a single color, does not the evaluation of economy of a country as large and as plural as India needs more shades.
    Economics, like life and all its many other domains, is not something that is static to fit into existing or known models of straight jacket definitions alone. It is more of freakonomics.

    So whether it is growth story or any other story there are certain fundamentals which need to be very carefully handled namely perception, proper evaluation and projection of pertinent data.
    Read this when you have time


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