Facing criticism that GDP growth estimates by his office of 7 per cent for the third quarter ending December 2016 sharply overshot most projections — even those in the Economic Survey and by the RBI — India’s Chief Statistician T C A Anant on Thursday said that quarterly data indicators used currently for GDP estimation are “limited” in nature.
And that although they lack the degree of granularity that may ideally be warranted, “it is as good as you can do given the amount of information which is available with the frequency with which it is available”.
More complete information for the third quarter of the current fiscal, the period when the demonetisation exercise was rolled out, should be available by next year, he added.
On the credibility of the quarterly data releases, Anant underlined that “it is a careful statistical exercise” and that in many areas, “more complete information would be available in many ways by next year”.
“For example, on capital formation, I will get more complete information when complete accounts are available. At the moment, we are assessing it from a limited set of indicators which are there… So, certainly as more data becomes available, assessments will improve and that is why we have a system of revision. But I can only improve for which data is available,” he told The Indian Express.
The GDP growth estimates of 7 per cent for the third quarter surprised many given data showing impact of demonetisation on credit growth, automobile sales and real estate activity.
On the current practice of using proxies such as tax for trade, cement and steel for consumption, and whether it sufficiently captured the impact of a disruptive move such as demonetisation, Anant asserted that the logic of indicators such as sales of cement and steel going up is that they must have been used somewhere.
“I am unfortunately constrained to use publicly observable data,” he said.
In terms of getting more representative data, he said there is always scope for that. “At this point I can say that we are using all the data which is with us currently. But we are always open to looking at more data whenever it becomes available,” he said.
The problem with the data, he said, stems from what essentially defines India’s informal sector. “The informal sector is, in national accounts parlance, where regular accounts are not maintained. The reasonable way of defining is that it has close correspondence to other ways of thinking what the informal sector is. For example, small manufacturers, retail trade who do not maintain regular accounts will fall into the informal sector. One consequence of not maintaining regular accounts is that there is no database of accounts to tap in. If regular accounts would have been maintained, a methodology of capturing accounts-based information would be there,” he said.
As a consequence, the informal sector is assessed through correlated indicators in each of the broad components — agriculture, trade, construction and manufacturing. Agriculture, one of the largest components, is pretty much entirely informal, Anant said. In agriculture, the statistics office assesses GVA (gross value added) by a combination of data on output, which is generated from data on acreage and yield, for which there are well established regular survey procedures and those are then conflated with value-added data that comes from the cost of cultivation survey, which gives an idea of the value added in the agri sector.
The second chunk of the informal sector is in trade, where an indirect assessment of the informal sector is taken by generating a volume measure of the non-corporate sales tax collection — sales tax collection arising from non-corporate sources, which generates a volume measure. In construction, an indirect measure of assessing informal sector activity by the off take of consumption or consumption of steel and cement is used that is largely an indicator of volume, he said.
The only place where formal sector value added is used to assess informal sector activity is in the area of manufacturing, where there is regular data collection. “But it is for entities which are easily tapped both in IIP (the Index of Industrial Production) and the ASI (Annual Survey of Industries). We project from these into the informal sector. Now, the challenge of informal sector is precisely for the characteristic which it has, that it is small and doesn’t maintain accounts”.
He said the possibility of this sector getting reduced and turning more formal in character after the GST rollout would help the statistics office get direct transactional details. “There’s some suggestion that if the GST gets implemented, we may get a more precise indicator of trading volumes and is currently being captured in the sales tax figures because this will be a single integrated database, which will be created so there will be no jurisdictional issues… I am not saying there’s no scope for improvement, but I am not aware at the current level of knowledge a better assessment of what has happened in the informal sector,” he added.