‘CSO estimate is based on past data. In subsequent revisions, it will change.’
Shrugging off the Central Statistics Office’s (CSO) dismal projection on GDP (gross domestic product) growth for the current fiscal as an underestimate, the Finance Ministry, on Friday, expressed confidence that subsequent revision in estimates — as is the norm — would peg the economic expansion figure higher at 5.5 per cent or more.
In a statement here, the Finance Ministry pointed out that while the CSO’s advance estimates on GDP growth for 2012-13 at 5 per cent was ‘indeed disappointing’, such advance estimates had been revised more than once in the past years as more data is available to it in the months ahead.
Churning out CSO data on various estimates of GDP growth since 2005-06 which showed upward or downward correction in the final projection, the statement said: “It is, therefore, likely that the advance estimates of 5 per cent will be revised and the final estimate will be closer to the government's estimate of a growth rate of 5.5 per cent or slightly more.”
The Finance Ministry argued that since the CSO bases its advance estimates on the data till November or December, depending on availability, “this makes its estimates accurate when GDP growth is following a trend, but not when it is turning. So, for example, growth was overestimated as the economy slowed in 2008-09 and 2011-12, while it is probably underestimated now.”
To prove that there was still room for cautious optimism, the statement also drew attention to certain indicators which point to “early sign of an upturn” in the economy. The first such sign is the Purchasing Manager’s Index (manufacturing) which started moving up since October 2012 and is accompanied by a seasonally adjusted stabilisation of the IIP (Index of Industrial Production) from the same month onwards.
Moreover, while the year-on-year growth in excise duty at 16 per cent and 33 per cent in service tax in April-December, 2012, is yet another indicator of a turnaround, the moderation in inflation to 7.2 per cent, particularly core inflation to 4.2 per cent in December, 2012, and the Reserve Bank’s decisions to reduce policy rates by 25 basis points will also help in spurring growth, it said.
Meanwhile, in his lecture at a symposium organised by Citi-Sloan here, Chief Economic Advisor Raghuram G. Rajan noted that the CSO estimate for the fiscal year was “below potential” and the government would have to pursue policies to push growth to at least 8 per cent.
“CSO’s estimate of 5 per cent or 5.5 per cent growth [for 2012-13] is way below potential. We do need to up growth, we need to undertake policies that will enable us to reach at least to 8 per cent, which people think is lower bound for our potential growth,” Dr. Rajan said.
As in the Ministry statement, Dr. Rajan also pointed to some problem in CSO’s estimate of GDP growth. “One of the problems with the CSO estimate is that it is based on past data, and at turning points in GDP growth...Looking at past data, underestimates change,” he said.
The CEO also underscored the need to contain the fiscal deficit. “We need to fix the fiscal deficit. We can’t keep running large fiscal deficit and borrowing to finance it,” he said. This is where Finance Minister has made a firm commitment that this year’s fiscal deficit will be 5.3 per cent,” he said.