The CSO (Central Statistics Office) released new GDP numbers based on base year change and change in methodology of computing GDP. Real GDP at constant 2011-12 prices was pegged at 6.9% for fiscal year 2013-14 and is forecast at 7.4% for fiscal 2014-15. GDP at constant 2004-05 prices was at 5% in 2004-05 and was forecast at 5.5% in 2014-15. Third quarter 2014-15 GDP was at 7.4%, against first two quarters growth of 6.5% and 8.2% respectively. First two quarters growth as per 2004-05 base was 5.7% and 5.3% respectively. GDP growth as per revised GDP numbers is much higher than old GDP numbers. Read our tutorial on GDP revisions to understand the changes made to GDP computation.
The higher growth numbers as per the revised GDP is not in sync with the ground realities in the economy. The CPI (Consumer Price Index) inflation data as per new base year of 2012 and with revisions in weights of items within the index indicate that pricing pressures are absent in the economy. CPI printed at 5.11% for the month of January 2015, flat on a month on month basis. CFPI (Consumer Food Price Index) inflation printed at 6.06% in January 2015, declining by 0.65% on month on month basis. Read our tutorial on CPI to understand change in weights in items comprising the index.
Core CPI fell to 4.3% levels, up 0.5% month on month.
CPI inflation is down from levels of 8.8% seen in January 2014 even as GDP growth has risen as per revised data.
Economic data for the first nine to ten months of the fiscal year too does not corroborate with higher GDP numbers.
IIP (Index of Industrial Production) growth for the April-December 2014 period was just 2.1% against a growth of 0.1% seen last year. Manufacturing growth was 1.2% against negative growth of 0.4%. Capital goods growth was 4.8% against -0.4% while consumer durables growth was negative 15.2% against negative 12.9%.
Bank credit growth has slowed down considerably since last year. Bank credit grew by 10.7% year on year as of January 2015 against a growth of 14.7% seen in January 2015. Slowing bank credit substantiates weak IIP data.
Passenger car sales growth was at 4.8% in the April – January 2015 period while overall commercial vehicle sales was negative 4.6%.
Indirect tax collection grew by 7.4% in the April-January 2015 period, well below 19% growth targets for the full fiscal year. Net direct tax collection has grown by 7.4% in the April-December 2014 period, below full year growth targets of 19%.
Trade data shows that exports grew by 2.3% in the April – January 2015 period while imports grew by 2.2% with non oil imports growing by 7.5% largely due to 140% jump in gold imports. Anemic growth in exports and imports suggest weak external and domestic demand.
The government will be hard pressed to achieve its revenue targets for this fiscal year and will have to curb expenditure to meet its fiscal deficit target of 4.1% of GDP. Fiscal deficit has crossed 100% of budget as of December 2014. The government will curb spending leading to demand coming off in the economy.