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Signs of a slowdown

The Central Statistical Organisation (CSO) has, in its advance estimate, lowered its GDP forecast for 2007-08 to 8.7 per cent. Considering that the CSO had earlier estimated a 9.1 per cent growth during the first six months, this projection for the entire year might suggest a sharp deceleration in the last two quarters. The economy grew by a robust 9.3 per cent in the first quarter, but slowed down to 8.9 per cent in the second. Hence the scaled-down growth rate does not s eem to be out of line with recent trends. The CSO has cited high interest rates as the principal factor driving up the production cost of industrial goods and reducing the demand for consumer goods. The manufacturing sector is expected to slowdown to 9.4 per cent from 12 per cent last year. Mining and quarrying will grow at 3.4 per cent, compared to 5.7 per cent in 2006-07. None of these estimates should be surprising. The slowdown in specific sectors such as consumer durables and transportation equipment, both sensitive to interest rate changes, has been quite pronounced for some time. However, the projection for agriculture growth, at 2.6 per cent — sharply lower than the 3.8 per cent for 2006-07 — seems to run counter to recent estimates of output. Agriculture and allied sectors grew by 3.7 per cent during the first six months.

There are good reasons why the recent growth data ought not to cause too much concern. A growth rate of 8.7 per cent would still be creditable and not out of sync with other reliable forecasts. The RBI’s estimates have been consistently lower at 8.5 per cent. The Prime Minister’s Economic Advisory Council has forecast an 8.9 per cent growth. However, the Eleventh Plan has assumed an annual growth rate of 9 per cent over the five-year period beginning this year. Very recently the CSO revised its data for 2005-2006 and 2006-07 upwards. The GDP growth last year was raised to 9.6 per cent from 9.4 per cent. The revision in the base might have contributed to the lower forecast for the current year. What is clear is that there ought to be a review of the process of data collection and estimation. At present the CSO releases the data in five stages — the advance estimates followed by revised, quick, provisional, and final estimates. There is a considerable time lag between successive stages. Delayed revisions might reflect poorly on the quality of data gathering and processing.

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