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| Edited By: |Source: DNA |Updated: Feb 11, 2015, 05:10 AM IST
It is good news for the Modi government in general, for finance minister Arun Jaitley in particular, and by extension, the former finance minister P Chidambaram, who held the reins of the finance ministry from 2012 to 2014. The Indian economy is set to grow at the rate of 7.4 per cent in 2014-15 as compared to 6.9 in 2013-14. Those are robust figures at a time when the global economy is struggling to walk, let alone run. But the irony lies in this. The finance minister’s chief economic advisor, Arvind Subramanian, and Reserve Bank of India (RBI) governor Raghuram Rajan, held back their acquiescence to the new method of calculating the GDP.
This is the gross value added (GVA) method. The GVA is the share of each industry and individual being factored in along with the taxes that each sector and individual pays and to deduct the subsidy if there is any. In a way it is an attempt to capture the real state of the economy as accurately as possible, but the figures that come out are quite interesting. For example, the rate of growth for the October-December (2014) quarter for India is higher than that of China, which is good news even for hardened pessimists. But everyone knows there is not much truth in this because of the difference of scale between the Indian and Chinese economies. BJP politicians would want to go to town with these figures — but not the level-headed experts.
The other aspect of the encouraging numbers released by the CSO is that it uses the new baseline, 2011-12, at constant prices. It is a well-known fact that when the baseline is a low-growth area, as it had happened in the case of India, the projections for the following years shoot up. But they do not reflect the real state of the economy.
The lesson in all this is simple. Intelligent people do not flaunt numbers to browbeat opponents or beat one’s own drum. They use figures with caution to understand a situation. The CSO has been right in revising the baseline because it will give a realistic picture of the state of the economy, and it has also done the right thing in using GVA as well. What we need is a more accurate picture of the whole economy, and these figures are not to be bandied about to score brownie points in political debates.
The Indian economy is passing through a tricky phase. It is in a state where it could be buoyed up or could suffer a steep fall. The temptation to use the new figures to paint a rosy picture will not help. It does not mean that one should continue to use the old figures in the name of stability. The new figures will reflect the new reality in an accurate manner sooner than later. This will be the only year of discrepancies and surprises and shocks. Jaitley is sure to use these figures in his Budget speech as he should but there is not much satisfaction that he can derive from them. It will take hard thinking, harder decisions to put a growth-friendly policy framework in place. For the moment, Modi may have to shift from his pep talk to real decisions in order to facilitate implementation of infrastructural projects. The Prime Minister has spoken at length about what he wants to do. People now want him to get things done. This is indeed one of the lessons of Tuesday’s Delhi election result.
