Is India's GDP Growth For Real?
By Devinder Sharma
04 March, 2011
Ground Reality
Economic Survey 2011 talked of robust growth and steady fiscal consolidation as the hallmark of the Indian economy. After all, with a growth of 5.4 per cent for the agriculture and the allied sector on the back of the increase in foodgrain production this year, country's GDP has been worked out at 8.6 per cent in 2010-11. And as many economic writers have explained the impressive economic growth is because of a resounding performance of the farm sector.
I see jubilation all around. Business CEOs, bank heads and the policy makers are all excited. If you have seen the budget discussion -- both prior and after the budget was presented on Feb 28 -- you would have noticed that none of the economists or for that matter economic writers have questioned the veracity of the claim. That is what worries me.
Now let us look at what has been claimed. The GDP in 2010-11 has been estimated at 8.6 per cent. Given the buoyancy in agriculture, and hoping that the monsoon would be normal this year, the government estimates that GDP in 2011-12 would grow at 9 per cent. This however would depend upon the monsoon rains this year. If the rain gods again behave erratically, foodgrain production would slump and in turn the GDP growth would be much lower than anticipated.
This brings me to the question as to how true are the agriculture growth estimates for 2010-11? Since the 8.6 per cent growth the country has achieved in 2010-11 hinges on the robust performance of agriculture or as some analyst say on the manner in which agriculture has rebound, it is important to find out how true are the claims? Or are our policy makers deliberately fudging the figures to show a high economic growth rate? And then claim credit for something that is not there?
Agriculture growth in 2010-11 has been estimated at 5.4 per cent. This is primarily because foodgrain production for the current year is anticipated at 232.07 million tonnes. A year earlier, in 2009-10, agriculture production had fallen to 218.11 million tonnes, a drop of 16 million tonnes, on account of the widespread drought witnessed in 2009. In other words, it is the quantum jump in foodgrain production, from 218.11 million tonnes in 2009-10 to 232.07 million tonnes in 2010-11, that has driven the farm growth. Of course we know that foodgrain production is not the only criteria when we work out farm growth but it remains the predominant factor.
Now is India justified in computing the increase in foodgrain production in 2010-11 as the reason for 5.4 per cent growth in agriculture?
In 2009-10, when foodgrain production was low at 218.11 million tonnes, farm growth was a dismal 0.4 per cent. This was because the year earlier, in 2008-09 when the monsoon season had behaved normally, foodgrain output was at a record 233.88 million tonnes. So obviously the shortfall in production from approximately 234 million tonnes to 218.11 million tonnes meant a drastic slump in farm growth.
In the 2009-10 crop year, farm sector growth was only 0.4 per cent due to severe drought in 2009, which hit almost half the country, reducing foodgrain production by 16 million tonnes, says the Economic Survey 2010.
Interestingly, while the nation rejoices at the recovery in foodgrain production this year, the fact remains that the anticipated food production for 2010-11 at 232.07 million tonnes actually is lower than what was achieved in 2008-09 by roughly 2 million tonnes. Foodgrain production in 2008-09 was 233.88 million tonnes, and in 2010-11 it is 232.07 million tonnes. I don't understand how can the fluctuation in foodgrain production resulting from weather aberration be construed as growth? More importantly, why are the distinguished economists, and there are a dime a dozen of them, point out this serious flaw in the estimates of farm growth?
Does it not mean that whenever you have to show a higher growth rate pray with folded hands that the monsoon fails? If the rains remain normal the next year, you can pat your back for achieving a growth (knowing well that the growth is nothing but fake).
This is exactly what has happened this year. Consider this. Let us assume that the 2009 drought had not happened. With the monsoon behaving normally, foodgrain production would have hovered between 232 to 234 million tonnes. If the foodgrain production had remained more than 230 million tonnes in 2009-10 (presuming that the drought had not struck) this year's foodgrain production would not have shown a quantum jump of 14 million tonnes over what was achieved in 2009-10. Under the best of conditions, India could have claimed an increase in foodgrain production by say 2-3 million tonnes.
If the foodgrain production last year had remained at 230 million tonnes or more, the agriculture growth this year would not have been 5.4 per cent but somewhere in the range of 0.5 to 1 per cent. If the farm growth rate had remained at 1 or a maximum of even 2 per cent, the country's GDP would have been around 6 per cent.
The GDP estimates for 2010-11 are therefore clearly hyped.
As I said earlier, mere fluctuations in foodgrain production is not growth. In agriculture, it is wrong to compute growth based on annual production figures (now it is being done on a quarterly basis !). Almost all well-known farm experts agree that growth in foodgrain productions has to be estimated on a long-term basis, in any case not for a period less than an average of 5 years, to know whether there has truly been any growth or not. Anything less than this is merely a statistical jugglery.
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