Improve economic model to forecast GDP: Abhijit Sen

Concerned over the widening difference between growth projections and actual realisations, the Planning Commission has made a case for improving the economic model to project GDP.

Updated: May 19, 2013, 11:31 AM IST

New Delhi: Concerned over the widening difference between growth projections and actual realisations, the Planning Commission has made a case for improving the economic model to project GDP.

"I think we are currently suffering from the fact that modelling of the economy is not as robust as it should be, given that the world situation is so much volatile. We should have been actually doing more on the modelling side, we are actually doing less," Planning Commission Member Abhijit Sen told the agency in an interview.

As against the Finance Ministry's projection of 7.6 percent growth rate in 2012-13, the GDP expansion, as estimated by the Central Statistical Organisation (CSO), is likely to be only 5 percent.

Sen said there is a lack of willingness on the part of the intellectuals and policymakers to think about remodelling the economy and the economic model should be more robust.

"...You have been in a situation where most of your predictions have been going wrong, the first thing should be asked why are the predictions going wrong. So you should actually be looking at what's wrong with that," he said.

On India's growth potential, Sen said the country can grow as much as 7.5 percent as the savings rate is fairly high. "I would say that given our savings rate, which are still fairly high, I think 7-7.5 percent is the sort of growth one would expect. We are well below that... I wouldn't actually go very much higher above 7-7.5 percent."

He further said the growth of 5-6 percent is too low for India, though, the growth of 8-9 per cent is also too high at which the country was growing earlier.

"I think 8-9 percent also too high in the sense that we were riding a global wave and the global economy is now in a very different situation. Europe is still not out of recession completely, the US is improving and all other economies are slowing down. So I mean the work situation is very different from 8 or 9 percent."

The economy grew by 9.7 percent in 2006-07 and 9 percent in 2007-08. However, the fiscal stimulus measures of the government post global economic crisis of 2008-09, when the economic growth fell to 6.7 percent, helped India expand by 8.4 percent in both 2009-10 and 2010-11.

But in 2011-12, the economic growth fell to 6.2 per cent and it is projected to fall further to a decade low of 5 percent in 2012-13 due to global economic slowdown as well as domestic factors.

For the current fiscal, 2013-14, the government has projected the economy to grow at about 6.1-6.7 percent.

When asked if the Reserve Bank should lower the policy rates in June, he said the central bank has been doing it over time and it may take softening of inflation into account in its next meet.

"They will probably do it and they have been doing it over the time... We have been seeing a decline in inflation and it would probably continue and therefore I think it will be taken into account (by the RBI)," he said.

The wholesale price based (WPI) based inflation fell to a three-and-a-half-year low of 4.89 percent in April due to fall in prices of food items, including fruits and vegetables. It was at 7.50 percent a year ago. Also, retail inflation came down to single digit at 9.39 percent in April.

RBI governor D Subbarao said earlier this week: "We certainly will take note of the softening of inflation and the external payments situation in the next mid-quarter policy statement on June 17."

In its annual monetary policy review earlier this month, RBI cut the key interest rate by 0.25 percent to 7.25 percent.