‘China-like growth doesn’t mean India is booming’

Bloomberg/New DelhiA growth rate on par with China doesn’t mean that India’s economy is booming, its top statistician said.Gross domestic product is forecast to expand 7.4% in the year through March 31, matching China’s growth last year and rising from 6.9% last year, according to a new government data series that has left economists confused. In the quarter ended in December, it expanded 7.5%.Despite what the numbers say, India’s economy is still recovering and the central bank shouldn’t use the upward revision in growth alone to decide on interest rates, according to TCA Anant, the top bureaucrat in the Statistics Ministry.“The RBI shouldn’t use these numbers mechanically,” he said in an interview in New Delhi on Tuesday. “If you use old models for new data, your judgment won’t be accurate.Economists including Taimur Baig at Deutsche Bank, Radhika Rao at DBS Bank and Saugata Bhattacharya at Axis Bank have said the numbers aren’t in line with high-frequency indicators such as industrial production, which slowed to an average 1.5% in each month of last year from 4% in 2010-2013.Larsen & Toubro, India’s biggest engineering company, cut its full-year outlook on February 9, the same day as India raised its GDP forecast. The nation’s banking system is battling the highest levels of stressed assets since at least 2001, as one of the highest interests costs in Asia erode borrowers ability to repay.Policy makers are also sceptical. The Finance Ministry’s Chief Economic Adviser Arvind Subramanian has called the data mystifying and puzzling, while Reserve Bank of India Governor Raghuram Rajan said it calls for more scrutiny as he held interest rates unchanged three weeks after an unscheduled cut.“You have to rework the relationship between growth and inflation,” Anant said on Tuesday, adding that his method captures the value of the economy rather than the volume produced. “If the growth has taken place without a growth in volume but because of underlying change in per unit value added, I wouldn’t be so concerned about inflation because slack is still there in volume or employment.” Rajan last week identified moderate capacity utilisation in Indian industry as being one of the reasons an interest-rate cut wouldn’t work as a magic bullet. He maintained the benchmark repurchase rate at 7.75% and retained the central bank’s 5.5% growth forecast made under the previous data series.Inflation will be “around” the authority’s forecast of 6% by January 2016, Rajan said, shifting slightly from January 15 guidance that the rate will be below target. Finance Minister Arun Jaitley has pegged high borrowing costs as one of the key obstacles to growth.Representatives of his ministry were involved in the Statistics Ministry’s effort to overhaul the calculation methodology, Anant said. He declined to comment on whether Jaitley will use the new data when he prepares his budget for the year starting April 1 that’s due to be presented on February 28.The Statistics Office on January 30 said the revisions will have only a minor impact on indicators that are measures as a percentage of GDP as the size of the economy is unchanged.Jaitley has pledged to narrow the budget deficit to 4.1% of GDP and eventually get it down to below 3%. “High- quality fiscal consolidation” will be one of the key determinants of monetary policy, Rajan has said.India is the only big emerging economy to see total investment as a percentage of GDP fall over the past decade, according to International Monetary Fund data. It declined to 32% of GDP last year, compared with a six-percentage point advance to 48% in China.“In a large number of developed countries significant growth in GDP has come not from volume but value,” Anant said. “Whether the economy will continue to move up the value chain, I can’t answer.”