Division over GDP estimates sharpen
Rohit Joshi and Siddharth Tak/ZRG
As the world watches the India growth story, economic pundits here are ranged against government on the likely trajectory of macro-economic data in the country. While the government led by the Prime Minister’s Economic Advisory Council (PMEAC) is rather bullish, independent economic think tanks are somewhat muted in their growth expectation. The division persists in the analyst community as well.
The PMEAC recently pegged the growth rate at 6.7 percent in the economic outlook report for 2012-13 despite definite signs of slowdown and gloom. The Reserve Bank of India (RBI), in its latest policy review, too projected a growth rate of 6.5 percent. Furthermore, Prime minister in his Independence Day speech pegged the GDP growth this financial year (2012-13) at little better than the 6.5 percent. However, Montek Singh Ahluwalia, Deputy Chairman, Planning Commission has downgraded the growth rate to about 6 percent on account of deficient monsoon and global economic problems.
In contrast, the GDP growth estimates provided by various private forecasters have projected a bearish outlook. They have trimmed their forecast to as low as 5.5 percent. Nomura has predicted a GDP growth forecast of 5.8 percent followed by BOA Merrill Lynch (5.8 percent), Goldman Sachs (5.7 percent), CRISIL (5.5 percent), CLSA (5.5 percent), and Citigroup (5.4 percent). Citigroup has also stated that if drought conditions worsen, growth could fall to 4.9 percent.
It’s baffling why there exist huge variations in the growth outlook between the government’s agencies vis-à-vis independent agencies. Dr. Soumya Kanti Ghosh, Head, Economics & Research, at FICCI, asserted, “Government can’t project lower growth rate in the beginning of the year as that would decline investor confidence. However, we have to do something very good to achieve growth rate suggested by PMEAC which looks difficult at this point of time.”
Averred D R Dogra, managing director and chief executive officer, CARE Ratings, said, “The private agencies have their own models and assumptions. While the government takes in say, 8.5 percent growth in services, these could take 8 or 7.5 percent thus leading to a different forecast of GDP. These agencies tend to be less optimistic of growth numbers, which appears to be a trend in the last year or so.”
A K Prabhakar, Senior vice president, equity research, Anand Rathi Financial Services, opined, “While forecasting the GDP all entities have their own assumptions but it is generally seen that estimates made by the government entities are more optimistic in nature which tries to give a better picture of the economy.”
It is not as if there are no takers for the government GDP estimates. Brinda Jagirdar, General Manager, Economic Research Department, State Bank of India (SBI), argued, “Actually private entities are being excessively pessimistic with regards to the current macro situation. There is a herd mentality in the private sector and they are getting carried away with the pessimism in the near term.”
On her own prediction for 2012-13, she said, “We expect GDP to grow by 6.6 percent in the best case scenario. However, in the worst case it is expected to be 6 percent as we don’t know the extent of drought.” Ghosh at FICCI preferred a conservative estimate. “It’s really very difficult to achieve 6 percent growth rate in the current fiscal. A 5.5 – 6 percent GDP growth rate can be seen in the current fiscal with a higher possibility on the lower side of the range.
Considering the weak IIP numbers, we expect first quarter GDP numbers to slip below 5 percent and more precisely to be around 4.9 percent. With 4.9 percent of the GDP in first quarter then it would be very difficult for whole year to post a growth rate in excess of 6 percent.”
Prospects for a further downgrade too evoked a divided opinion. FICCI’s Ghosh said, “It would depend on agriculture. Rains have picked up a little bit in August but anyway let us keep the finger crossed while there is an urgent need to manage fiscal consolidation very quickly.” SBI’s Jagirdar said it was unlikely that the economy would witness further downgrade in the growth forecasts as most of the negatives were already factored in.