Excl: India Chief Statistician explains Q1 GDP numbers

Even as the country's first quarter gross domestic product (GDP) was seen slowing from 7.5 percent to 7 percent, the number befuddled a few economists.For instance, while GDP at market prices (under the newly-adopted method to measure growth) stood at 7 percent, GDP growth measured by gross value added stood at 7.1 percent.In the previous quarter, GDP at market prices stood at 7.5 percent while GVA was at 6.1 percent.The GVA takes into account GDP growth after adding indirect taxes and subtracting growth.In an interview with CNBC-TV18's Latha Venkatesh (along with Yes Bank chief economist Shubhda Rao), Dr TCA Anant, Chief Statistician, Central Statistics Organisation, talked about the data released today and outlined how the organisation had arrived at these numbers.Below is the transcript of the interview on CNBC-TV18.Latha: Last quarter - for the fourth quarter the Gross value added (GVA) had come in at 6.1 percent and the Gross domestic product (GDP) at 7.5 percent. There was an expectation that there will be a 1 percent difference between the GVA and the GDP because the taxes have been increased, fuel taxes for instance have gone up if anything in this quarter. However this time we find that the GVA and the GDP number are the same, why is that?A: First of all the difference between the two -- as you noted -- is [GVA is calculated by adding] the indirect taxes less subsidies. The method in which they are calculated needs to be understood. In current prices, the indirect taxes and subsidies are calculated from the government accounts data. So, there is no confusion there, the numbers are exactly what the accounts show. In constant prices, in the new series, the manner in which net indirect taxes and subsidies are calculated is as per the recommendation of the System of National Accounts (SNA) and International Monetary Fund (IMF) manual. Essentially the tax collection is grown by a physical indicator reflecting the value of output. What happens is we grow over the first quarter of last year with various physical indicators available on indirect taxes. That is what generates the growth in net indirect taxes and subsidies. So, the difference between the two - the internal deflator arises out of the difference between the growth in the current numbers, that is what is there in accounts and the growth in the physical indicators which is available from various sources.Latha: Are we to therefore understand that the indirect taxes have not grown at all? Is that why you have no difference?A: No. What does it mean by saying indirect taxes at constant prices? Indirect taxes at constant prices have not grown by that much but it is at constant prices. At constant prices indirect taxes simply refers to the indicator of volume.Latha: How should we understand the fact that last quarter, in Q4 there was such large difference there?A: The method is the same. Remember also further the growth is on a year on year basis but the method remaining exactly the same the difference reflects the growth between the volume indicator and the value indicator.Latha: So, we should understand that in constant terms indirect taxes did not grow?A: That is right. Current prices data is separately given and that will match with what is there in government accounts.Latha: In current prices of course there is a difference between the gross domestic product (GDP) which stands at 8.8 percent in nominal terms. So, perhaps you could account for it. Overall what is your sense. If the GDP number is 7 percent, it looks like we are kind of slowing isn't it? Because the GDP in the fourth quarter itself was 7.5 percent.A: There are two elements. Again let me separate out between current prices and constant prices. Insofar as the current prices numbers are concerned we are slowing because overall price levels have been coming down. Admittedly the GDP deflator is not negative partly because it is a mix of CPI and WPI but it is significantly lower than what it was last year.Insofar as constant prices are concerned the quarter on quarter (QoQ) figures are not bad and it is comparable to what was there last year. Last year the constant price number at first quarter was 7.4, this is 7.1. It has not shown a significant increase but it is in the same ball park.Latha: What would you estimate the nature of growth in the coming quarters? Do you think we would do better than seven percent, say, in the second half or even in the current quarter?A: I don't want to speculate on that because there are a number of factors which should be taken into and we go into the next quarter. The first part which you want to remember is what happens in agriculture. Agriculture in this number -- the crop production is pretty much driven by what we already knew in the third quarter, because the Rabi estimates then and the Rabi estimates now are not very different. The agriculture estimate therefore to a significant extent is driven from the agriculture year 2014-15.It is still too early for us to say what the agriculture year 2015-16 will be like because the first estimate is not yet due. That will give us the assessment of what the impact of the monsoons has been because the estimate will pretty much be on cropped area. So, that will be a big if which will determine whether we slow down because last year was bad. Now if we can at least maintain the base effect will help us and agriculture estimates will improve estimates but that needs to be seen because this year also the monsoon has not been that good. So, we will have to see how that translates to.On the positive side a number of sectors are showing positive growth. Manufacturing has shown positive growth, the services have tended to show a fairly positive growth and at the moment on the corporate side going on the basis of estimates from the listed companies who file advance estimates, we may hope that when everybody's numbers come in this could go up further. So, that is something which you will have to wait and see.Rao: Just had one question on the seeming disconnect between the government expenditure and the high frequency data on the government spending in capex. How are these numbers tying up, is it the revenue expenditures going into Government final consumption expenditure (GFCE) and the government led capital expenditures going into Gross fixed capital formation (GFCF). So, just wanted to have some kind of direction on these lines.A: I am not very certain on what the position on government expenditure is but there are two points, one, government expenditure will be as per CGA upto June 30. Secondly, so far as the GVA calculation is concerned it will be principally on the revenue side. The capital formation expenditure will not figure in GVA so much and will be taken up in GFCF.Latha: It looks like capital formation is decent at 4.8 percent but government final consumption expenditure is only 1.1 percent. So, should we assume that a lot of the government expenditure has been accounted for in capital formation in the GFCF?A: That is not inconsistent with the way the current Budget has worked out. There has been a considerable squeeze on current expenditure and a much greater emphasis on capital expenditure.Latha: Any other thoughts in terms of how services and industry might progress, is there any weak links that you have noted? You spoke about agriculture at length. Are you seeing green shoots in services because the trade number has come in very good at 12.1 percent. Do you think you can see green shoots in the non-agricultural part?A: To me the more positive number is the positive number on manufacturing. Manufacturing has come in at a robust number and manufacturing then tends to link up with a number of other sectors including trade and number of segments in services. If we can continue to hold up manufacturing for a while longer then the possibility of services picking up will be high. There are some areas of concerns and one of the areas of concern compared to - electricity continues to be poor and that is partly a reflection of the fact that our major electricity boards, the ones who supply electricity, continue to face significant problems and there is a mismatch between capacity and what is actually being produced.Public administration and defence will probably for the remainder of this year stay low, though it may pick up if the pay commission recommendation is implemented and it will matter as to how that recommendation phases in and when will it be implemented from.Latha: If the Seventh Pay Commission is implemented, it will get reflected in public administration?A: It will largely fit into public administration and defence.