February 08, 2015

New Series for Economic Data: Lies, Damned Lies and Statistics

SO goes an old English saying. Statistics are prone to manipulation by the powers that be. Such manipulation is often used to portray a normally bad economic situation, particularly those aspects that concern the livelihood health of our people, in a rosy light. The recent change in the base year, the point of reference to measure changes in economic parameters, to calculate India’s GDP and other indicators is a case in point. First, see how statistics can be manipulated. The current marginal fall in the rate of inflation (not a fall in prices but a fall in the rate of rise in prices) is being portrayed as a reflection of sound economic policies of this Modi government. Now, prices of commodities are crucially dependent on their demand and supply. The supply of any product, particularly food articles, may be short of the demand that the people have for them, resulting in price rise. This could be due to serious structural economic bottlenecks that prevent the economy to produce more. These, then, would have to be tackled by drastically changing economic policies. The prices, on the other hand, can rise, as is happening currently, when unscrupulous traders and middlemen hoard commodities and force an artificial supply shortage. In this situation, neither the producer (kisans in the case of agricultural products) nor the consumer benefit. The middleman makes windfall profits. This, then, would have to be tackled through administrative measures. In the case of a demand-supply mismatch, prices can fall either if supply rises or demand falls. As we shall see later (and also argued repeatedly in these columns in the past), the overall decline in the purchasing power in the hands of our people reduces domestic demand thereby depressing prices. Thus, prices fall as people’s miseries grow and they consume less. This is particularly true of our agricultural sector. The fall in the rate of inflation of food articles, therefore, is mainly due to the fall in domestic demand which reflects the deteriorating livelihood health of our people. It is not the other way round that the rate of inflation has fallen due to the improvement of the health of our economy and a corresponding increase in supply. Statistics can, depending on how they are used, manipulate and mask the reality. This is precisely what this Modi government is seeking to do. A case in point is the shift in the base years for calculating our national economic parameters. The base years for the National Accounts Statistics have been regularly shifted in calculating India’s economic parameters normally every decade. The first official estimates of national income were prepared by the Central Statistical Organisation (CSO) with the base year 1948-49 for the estimates at constant prices. With gradual improvement in the collection of basic data over the years, a comprehensive review of methodology is undertaken and on this basis the national accounts shift the base year for calculation. In the past, they have been shifted from 1948-49 to 1960-61 in 1967; from 1960-61 to 1970-71 in 1978; from 1970-71 to 1980-81 in 1988; and from 1980-81 to 1993-94 in 1999. Thereafter, the base year was changed to 2004-05 in 2006. The next change should have normally occurred in 2016 or later. However, it has been changed now in 2014 soon after Modi’s victory in the last general elections to 2011-12. This year, along with this change, the conceptual framework has also changed. The GDP calculations would no longer be based on “factor cost”. Instead, the Gross Value Added (GVA) will be analysed. This has also been justified in the name of facilitating “international compatibility”. This change in the base year for computing national accounts pushed up the economic growth rate for 2013-14 to 6.9 per cent, while earlier estimate on the basis of the old series, ie, 2004-05 base year, was 4.7 per cent. Similarly, the economic growth rate for 2012-13 has been revised upwards to 5.1 per cent compared with the 4.5 per cent estimated earlier. However, contradicting the `marketing’ of increased prosperity of our people, the rate of gross capital formation, a truer reflection of our economic fundamentals determining the investment rate in the economy, at constant prices, fell from 37.2 per cent in 2012-13 to 33.4 per cent in 2013-14. This shift in the base year results in the padding up the economic data, in painting a rosy picture, in the build-up to the first full budget presentation by this Modi government in February 2015. In order to contain the burgeoning fiscal deficit, the finance minister has already reduced non-plan expenditures by 10 per cent across the board and has spent less than 30 per cent of the planned budget allocations in key social sectors during its first six months in office. This reduces government expenditure, thus, reducing the fiscal deficit. Such cuts, however, are deeply impacting, negatively, the livelihood standards of our people. Such a statistical increase in the size of the economy, naturally, increases the fiscal deficit as well. This is shown at Rs 5.32 lakh crore for April-December 2014 (after the formation of this Modi government) surpassing the full year’s estimate in the last budget of Rs 5.31 lakh crore. This means that the Modi government spent more on unproductive, ie, wasteful expenditures. For 2014-15 as a whole, the fiscal deficit would, therefore, be higher. This higher deficit is officially attributed to lower revenue collections due to the economic slowdown. The finance minister is trying to overcome this, apart from cutting social sector expenditures, as discussed above, through higher revenues from the public sector disinvestment proceeds (already the sale of shares of Coal India Limited has garnered the government more than Rs 20,000 crores), telecom spectrum sale and windfall revenue gains from the recent hikes in excise duties for petrol and diesel (instead of passing on the benefit of lower international prices to the people). The government still needs to resort to spending cuts with the view to meet the fiscal deficit target of 4.1 per cent of GDP. This means more expenditure cuts, hence, more burdens on the people in the coming budget. Ironically, much to the Modi government’s discomfiture, this revision of the base year also inflates the growth parameters during the last years of the UPA-II government. The former finance minister, P Chidambaram, was prompt in saying: “I am happy that the government has released the revised GDP data. It should put an end, once and for all time, to the misconceived charge that the UPA government had mismanaged the economy”. And, “I sincerely hope that the government’s leaders will stop repeating the jibe of sub-5 per cent growth in the last two years”. According to the new series, the growth rate for the last year under UPA-II, 2013-14, is now estimated at 6.9 per cent as against the previous 4.7 per cent. Similarly, the GDP growth rate for 2012-13 is now revised upwards to 5.1 per cent compared with 4.5 per cent earlier. Such Congress-BJP tit-for-tat apart, the present new series of data masks the ground realities. Thus, the truth in the old English saying. Two columns ago, we discussed the declining purchasing power in the hands of the Indian people as reflected in the sharp fall in the sale of consumer durables. The situation in rural India which is home to two-thirds of our population is still worse. The situation in the agricultural sector has become more worrying. The total area under coverage for the current Rabi season as on December 19, 2014 has declined by minus 5.3 per cent. The production of major Kharif crops has declined totally from 129.3 to 120.3 million tonnes – rice from 92.3 million tonnes to 88; pulses, the main source of protein intake for our people declined from 6 to 5.2; Coarse Cereals, ie, jowar, bajra and maize, together, declined from 31 to 27.1 million tonnes. Apart from lower availability of foodgrains for our people, this data shows that many farmers are abandoning agriculture as it no longer provides them a sustainable livelihood. The sheer inability to return the debt they have incurred due to non-profitability is forcing farmers to commit distress suicides. As a result, farmers are abandoning agricultural production and migrating to the cities in search of livelihood. Compared to November 2013, by November 2014 the growth in the average daily wage rate in rural India had drastically fallen. According to the Labour Bureau, figures on demand and supply for the MGNREGS, rural employment guarantee scheme, the percentage of households who have been provided employment has fallen from 83.7 to 60.7 lakhs since this Modi government assumed office. The minimum support price for three continuous years is below the cost of production as calculated by the Agricultural Prices Commission. Agricultural products that are exported like cotton, rubber etc, are facing ruination because of fall in international prices. This makes cultivation completely non-profitable leading to non-payment of agricultural debt pushing more kisans towards distress suicides. In addition to the fall in urban demand for consumer durables, low farm incomes are putting pressure on sales of products that are closely linked to rural disposable incomes negatively impacting, also, corporate revenues and profitability leading to decline in industrial production rates. For instance, according to Mahindra & Mahindra, between May and December 2014, after this Modi government assumed office, growth rate of tractor sales have dropped from nearly plus 5 per cent to minus 31 per cent. Similarly Hindustan Unilever reports that its net sales dropped from 13 to 7.7 per cent and its growth of rural products volume dropped from 6 to 3 per cent. The agricultural distress, therefore, apart from compounding the misery of farmers and the rural population is adversely affecting industry as well. In the face of such distress, instead of addressing the problems as reflected in the recent government report, “Key indicators of situation of agricultural households in India”, this Modi government remains non-responsive. The union minister for agriculture, in an interview with Mint (January 27, 2015), admits that out of the 14.5 crore farmholdings in India, 65 per cent of cultivable land does not have irrigation facilities, hence, the crucial dependence on the monsoons. This Modi government displays a callous inhuman attitude. Instead of confronting the issue of farmers’ suicides, the union agricultural minister brushes away this growing reflection of rural distress by saying: “Only 9 per cent of farmer’s suicides are linked to agrarian distress”! Under these circumstances, the Modi government’s aggressive embrace of India becoming a subservient ally of US imperialism and, thus, opening up all our economic sectors to greater US and foreign investments will compound the current agrarian distress by allowing highly subsidised US and European agricultural and dairy products to be sold in the Indian market. While foreign capital will maximise its profits, the Indian farmer will be further ruined. Clearly, therefore, unless stronger pressure is mounted through popular people’s struggle to force this Modi government to reverse its current neo-liberal economic reforms trajectory, and using Indian resources for the development of the Indian economy leading to the improvement in the livelihood conditions of our people, the promised ache din will never be realised. (February 4, 2015)