Analysts v/s Economists PoV: GDP numbers

*This is just an informative post. Two different views are compiled and no opinion whatsoever is given.*

Let us get straight to the facts (sorry for not having many figures, but I do believe in the saying "statistics don't bleed") which have been causing a lot of debate over the past one month - 

1. GDP growth rate of India for the Jan-March quarter 2016 - 7.9%

2. GDP growth rate of India for 2015-16 - 7.6%

3. Export growth for 2015-16 - (15.8)% 

3. WPI has been negative for the past 17 months. More than 50% of the items in the WPI basket have seen a steady decline for that period. Mostly it is driven by imports (crude and steel)

4. Discrepancy in the GDP  - 1 lakh 40 thousand crore. An exponential 300% growth of 1 lakh 13 thousand crore INR

5. Employment is down and agricultural wages have been falling

Analysts PoV:

Almost every analyst who has been working on the Indian sector has criticised the GDP growth numbers. The number crunching tells us the growth of discrepancies has contributed to 51% of the 7.6% GDP growth. If we remove this, the annual growth rate becomes 3.9% (7.6% is claimed) and Jan-March growth rate becomes 4.2% (7.9% is claimed). Most analysts are hell bent on finding the answer to only one question: "How can discrepancies (statistical error in common term) account for such a large percent".

Even TCA Anant, the man behind these numbers is not able to answer why this number is this large, so we can take it as a fact. (He does gives an answer but: "I am a statistician, I get the estimates and these are estimated numbers, and there is no boundary for statistical discrepancy). What we can do is understand how GDP is first measured and how does this discrepancy come into picture in layman terms (basically my understanding). India uses UN System of National Accounts for measuring its GDP numbers. GDP is first measured from the production side. Then it is measured from the consumption side (C+I+G+NX). GDP from production side is measure using company accounts and Gross Value Added. For the consumption side, Net Exports data (NX= Exports - Imports) is regularly updated and is measured fairly accurately. Government spending (G) is taken from official budgetary estimates. Investment (I)is also available through advance estimates of company accounts. Consumption (C) is fairly difficult to measure and is largely estimated. The difference between the production side and consumption side numbers is called discrepancy. 

The other question bothering the analysts is that: When almost all the leading indicators such as, credit growth, purchase manager index et al, have been falling, how is the GDP rising by such numbers. 

To answer this, let us first take China out of the view. Every macro report you read on India right now, and I mean every, will point that China has risen by 6.7% as compared to India's 7.6%. The fact that India has become world's fastest growing large economy comes with a jaundiced view. India has grown by higher numbers than this before (2003-2006 - approximately 9% growth) and China seems to be following the rule that as the economy grows in size, its growth slows down. Now 7.6% standalone growth is good, but not that extraordinary. 

The growth is coming from Consumption (C) (apart from discrepancies) . Till the 2008 recession, India was mostly driven by Private and Government Investment. But after 2008, there is a clear pattern of Consumption dragging the Indian economy. 

But again, Consumption is largely estimated. So analysts, almost correctly, though these are still estimates and it is too soon to judge these figures, point out that most of the growth is coming from C, the numbers of which can be fudged. 

Economists PoV:

Economist are less concerned with the discrepancy numbers. They are happy that they are grossly correct numbers and point in the right direction of where the economy is going. Tax revenue of the government has also increased, so they are fairly certain that the GDP is rising. But they have a different issue. They point out that WPI has been negative for more than one year, although the CPI has been positive. There has been a drop in agricultural wages. So someone somewhere is hugely benefiting from this gap of WPI and CPI and that is not the common man, as pointed out also by the rising unemployment. Whose consumption is actually rising which is propelling the economy forward. They want the analysts to focus more on these numbers and leave the growth rate estimates for the time being.