A week after the government released a new set of GDP figures showing tigerish growth in 2013-14 at 6.9 percent, and not the pachydermic 4.7 percent derived using the earlier measure, it should be obvious to everybody that something does not quite seem to add up. Are the new figures, based on the gross value added (GVA) methodology, believable? How is it that the economy grew so fast, and none of us felt it? Or is there an out-of-the-box explanation that is still eluding us?
My own explanation is that election year spends may have added a public and (largely illegal) private spending stimulus equivalent to 0.5 percent of GDP. This level of stimulus could have played a hand in boosting 2013-14 growth beyond expectations. So, if growth really spiked during the year, it was also aided by high poll spending in a Modi wave election.
But before we come to that, let’s see why economists are raising a skeptical eye over the Central Statistical Organisation’s (CSO’s) new GDP numbers.
Chief Economic Advisor Arvind Subramanian, who has made out a case for increasing public investment due to sluggish growth, was the first to express some degree of disbelief in the new numbers. In an interview to �Business Standard, �he said: “I am puzzled by the new GDP growth numbers. The revised numbers show…. acceleration in GDP growth of 1.8 percentage points in 2013-14…This is mystifying because these numbers, especially the acceleration in 2013-14, are at odds with other features of the macroeconomy. The year 2013-14 was a crisis year – capital flowed out, interest rates were tightened and there was consolidation – and it is difficult to understand how an economy’s growth could be so high and accelerate so much under such circumstances.”
In Indian Express, Surjit Bhalla, chairman of Oxus Investment, makes it clear that something may be wrong – if not in the data, then in the explanations offered for the jump. The new CSO data does not pass the basic “smell test”, he says. Reason: “when data are revised, they are revised for all years under consideration…and new information…should affect the data for both the revised years and affect them approximately equally.”
Bhalla believes that if the changes had impacted the figures equally for 2011-12 and 2012-13, the real GDP growth in 2013-14, for which P Chidambaram has already started crowing, would have been lower. Possibly, around 6 percent instead of 6.9 percent. (Read Bhalla’s reasoning and logic for arriving at this figure here). Among other things, he believes that the figures for government consumption expenditure and the surge in investment activity do not accord with the reality of policy paralysis, the fall in ease of doing business and loss of business confidence at a time when bank and corporate balance-sheets were under strain.
Firstpost�had also pointed out �on 31 January that the big jump in 2013-14 was the result of the base effect, where the revised GDP numbers were shown to be very low in 2011-12 (the new base year) and 2012-13. Under the new method, the total value of the country’s GDP was reduced in both 2011-12 and 2012-13. Under the old method, GDP in 2011-12 was shown as Rs 90.1 lakh crore. In the new method, for the same year, the GDP is lower at Rs 88.3 lakh crore. For 2012-13, the old GDP figure of Rs 101.1 lakh crore was reduced to Rs 99.9 lakh crore. In 2013-14, the GDP calculated under the new method was Rs 113.5 lakh crore – a growth of 13.6 percent. After deducting the year’s inflation, we get a real growth of 6.9 percent.
So where could the explanations lie?
One can only speculate, but here is one possible explanation: big private and public expenditures relating to elections.
Public and unaccounted private spends tend to increase in election years, and 2013-14 was nothing if not a multiple election year set to peak in May 2014.
After the Gujarat election in December 2012, we saw the Madhya Pradesh, Rajasthan, Chhattisgarh and Delhi elections coming up towards the second half of 2013. And throughout 2013 and going up to April-May 2014, the BJP and Congress were ramping up poll spending, the BJP more than the Congress, with� Narendra Modi �is full cry.
Add to that the actually spending of the Election Commission, and the individual reported and unreported spending of candidates, and this would have acted as an economic stimulus. Data released by the Election Commission shows that �the BJP spent Rs 714 crore and the Congress 516 crore �for the Lok Sabha polls. The smaller national parties spent less – the NCP Rs 51 crore and the BSP Rs 30 crore.
But these are only the formal sums declared to the Election Commission. Informally, no one is under any impression that actual funds spent will be a multiple of these amounts. Gopinath Munde, the late cabinet minister, once claimed that an MP’s election costs Rs 8 crore. He withdrew the statement subsequently to prevent adverse scrutiny by the Election Commission, but if he was anywhere near correct, 2014 would have been even higher.
A study by the Centre for Media Studies estimated that the� total cost of the 2014 elections �would be around Rs 30,000 crore.
If we assume that a similar amount was spent in the assembly elections preceding the Lok Sabha one, we are talking of a spend of Rs 50,000-60,000 crore in 2013-14, much of it during the financial year for which growth has been calculated.
This is an economic stimulus equal to more than 0.5 percent of GDP during 2013-14. We can’t dismiss this stimulus, much of it below the radar, as inconsequential to growth.
If this is at least a partial explanation for the high growth of 2013-14, it should hold for 2014-15 as well – since this year has also seen an equal number of elections, from the tail end of the Lok Sabha elections to five state assembly elections held since then (with Delhi just concluding today).
If 2013-14 was a good growth year, 2014-15 should be even better under the new GDP method.
Also, if elections are the explanation, some credit should go to the Modi wave too. It wasn’t all UPA’s doing.
The writer is editor-in-chief, digital and publishing, Network18 Group