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North Block says CSO’s advance growth estimate for FY13 will get revised and final estimate will be closer to the govt estimate

Finance ministry on Friday run down the Central Statistical Organisation (CSO) projections of 5 per cent GDP growth this fiscal. It asserted that India’s economy would grow by at least 5.5 per cent this financial year, a clear half a per cent more than that projected by CSO in its advance estimates.

A finance ministry statement gave the GDP growth trend data for the previous years to indicate that advance estimates are based on data till November or December and did not capture the turnaround trend of the economy.

“The government states that as GDP growth is turning, it is likely that the advance estimates of 5 per cent will be revised and the final estimate will be closer to the government’s estimate of growth rate of 5.5 per cent or slightly more,” a finance ministry statement said.

The finance ministry cited figures in preceding years where the advance estimates have been revised more than once and CSO projections of 5 per cent GDP growth was “indeed disappointing”.

India’s chief economic advisor, Raghuram Rajan, said, “one of the problem with the CSO estimate is that it is based on past data and at turning points in GDP growth. Looking at past data underestimate change.”

Planning commission deputy chairman, Montak Singh Ahluwalia, too subscribed to this view. He said the advance estimates give GDP projections on the basis of the extrapolation of date when the economy was on the downward slide. CSO data has not captured the data after the economy bottomed out and started the revival process from October-November onwards.

The finance ministry said the advance estimates are accurate when GDP growth is following a trend, but not when it is turning. So, for example, growth was overestimated as the economy slowed in 2008-09 and 2011-12, while it is probably underestimated now.

Rajan felt the growth this year would be around 5.5 per cent rather than being around five per cent as per CSO estimate. But whether 5 per cent or 5.5 per cent growth, it is way below potential. We do need to up growth, we need to undertake policies that will enable us to reach at least to 8 per cent, which people think is lower bound for our potential growth.”

The finance ministry statement also drew attention to certain positives in the economy, which showed that it was on revival path. It said the purchasing manager’s index (manufacturing) started moving up since October 2012 and this is accompanied by a seasonally adjusted stabilisation of the IIP since October 2012.

The year-on-year growth in excise duty collections of 16 per cent and 33 per cent in service tax in April-December 2012 also indicated revival of manufacturing and services sector, it said. Finance ministry claimed that moderation in inflation to 7.2 per cent, particularly core inflation to 4.2 per cent in December 2012 and the RBI’s decisions to reduce policy rates by 25 basis points, would help boosting growth.

A Fitch group company, India Ratings said that the advance estimates point out towards further decline in savings rate in 2012-13. Advance estimates peg GDP growth in FY13 at 5 per cent, lower than the consensus and India Ratings expects 5.5 per cent.

The advance estimates portray a weak picture of stabilising twin deficits. While the estimated investment rate this financial year is likely to be similar to 2011-12, 80 basis points increase in share of consumption expenditure (private and government) would reduce savings rate further leading to widening of current account deficit this year, it said.

The growth numbers have implications for fiscal situation. The Union budget 2012-13 assumed a nominal GDP growth of 14.0 per cent and real GDP growth of 7.6 per cent (+/- 0.25 per cent). The nominal GDP is expected to grow by 13.3 per cent and real GDP growth is less than two-third of assumption made in the budget, it said.

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