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Craving Capital

Government must raise public investment by at least one per cent of the GDP

Written by Yoginder K. Alagh |
Updated: June 3, 2015 12:10:11 am
india economy, india GDP, india growth, us department of agriculture This merits a serious debate. Enhanced efficiency will not be able to take care of macro irresponsibility.

A number of recent troubled statements on the economy need to be taken cognisance of, especially given the experience of the people who made them and their level of concern . But before all that, there was a little statistic tucked away in the customarily bland advance estimates of the GDP put out by the Central Statistics Office that sent shivers down my spine. Gross fixed capital formation (GFCF) in the economy fell from 33.6 per cent of the GDP in 2011-12 to 28.6 per cent in 2014-15. This figure was revised, in the provisional estimates released on Friday, to 28.7 per cent. These figures are at current prices, but since both investment and the divisor, output, are denominated in current prices, it evens out. However, if you want to be totally kosher, at constant prices, GFCF was 30 per cent (provisional estimates), a whopping decline of more than 3.5 percentage points from 2011-12.

Such a large decline in investment as a share of output hasn’t taken place in independent India’s economic history. What this really means is that at least a couple of percentage points have been shaved off this year’s GDP growth prospects. This merits a serious debate. Enhanced efficiency will not be able to take care of macro irresponsibility.

So, it was reassuring to read that the prime minister has said “bure din” are behind us and the finance minister has said that he is going to raise investment levels. I know we don’t believe in investment planning anymore, not even for strategic policymaking, but the finance minister should give us hapless bystanders a clue to whether he is going to raise investment levels by one percentage point so that the economy can at least recover from the mess that it was left in by the previous government — or by 2-4 percentage points so that we can go back to the 2011-12 position.

The recent warnings delivered by economist-bankers have been similar: some serious masonry to mend cracked foundations is needed. The RBI seems cautious about the new GDP numbers and has indicated that manufacturing output is a matter of concern. The IMF also seems “puzzled” by the new series. Now, this is interesting. The problem, in fact, arises because we have finally moved to the “general data dissemination system” that the IMF had designed. We did this in the mid-1990s, although it took some time to implement. I took the decision when I was minister of statistics. Our statisticians, particularly the CSO, were against the move. Now, I am a great admirer of our statisticians. They do a thankless job and smart-aleck journos who don’t understand the difference between a forecast and a final number make their lives miserable. They also don’t have a minister who can stand up for them in Parliament. But I overruled them because I felt we should follow global best practices and our numbers should be internationally comparable.

But much as I admire our national income statisticians, I must say I don’t trust them to read a corporate profit and loss account very carefully. The IMF’s data dissemination standards force them to read profit and loss accounts, if for no other reason than the fact that a government is no longer analysed just in terms of budget revenues and expenditures but in terms of economic outcomes. It is not unlikely that as we track the value of output from the factory gate to the market (this is where a lot of accounting problems are taking place), the cost items that any experienced corporate honcho goes through with great familiarity present a maze for the CSO.

We must overcome this problem — and soon. After all, we are the land of Mahalanobis and the Indian Statistical Institute, and Sankhya is still a great journal. We must get answers quickly.

Meanwhile, good luck, Mr Finance Minister. We would be happy if you raise investment by at least 1 per cent of the GDP. Though two would be better, for what’s a percentage point between friends?

The writer is professor emeritus, Sardar Patel Institute, Ahmedabad

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