Decoding a new GDP figures: Has a retrogression that began in 2012 ended?

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The question

The earlier GDP series, with a bottom year of 2004-05, has been discontinued. The new array has a bottom year of 2011-12. On paper, a Central Statistical Organisation (CSO) has finished improvements in methods for a new series.

A poignant discuss is holding place about a soundness of a new data, on dual counts. First, some experts, such as highbrow Nagaraj of IGIDR, have voiced concerns about a methods used in a new series. Second, a new array seems out of sync with other directly totalled indicators.

What's a genuine GDP figure? ReutersWhat's a genuine GDP figure? Reuters

What’s a genuine GDP figure? Reuters

This methodological discuss about GDP dimensions comes during a time when a doubt of a age is: Has India recovered from a business cycle downturn that began in 2012, or has that downturn continued into a present? The high expansion rates manifest in a new GDP information suggests that a downturn has, indeed ended.

A devoted outlay proxy

The outlay magnitude that is unambiguously good totalled is a sum of income of listed non-financial non-oil firms, drawn from a CMIE database. Sebi regulations need that listed companies recover quarterly outline financial statements. We see annals for any firm, so there is no ambiguous methodology for extrapolation. It’s tiny further of section turn data.

Financial firms are expelled as their accounting concepts are not allied with non-financial firms. Oil firms are expelled as their outlay fluctuates a lot overdue to changes in a petroleum product funding regime and a fluctuations of a star oil price.

We erect an index as follows. For any span of uninterrupted buliding t1 and t2 we brand a firms I2 that are celebrated in both quarters. We sum adult a net sales during both time points to get y1=∑i∈I2yi,1 and y2=∑i∈I2yi,,2. This yields an guess of a expansion y2/y1. These commission changes are cumulated to make a favoured index and afterwards seasonally adjusted.

This yields a quarter-on-quarter seasonally practiced favoured expansion rate. This is an unambiguously good totalled outlay growth, that does not need stealing into debates about dimensions of inflation, or a CSO’s procedures for dimensions of GDP. This array is celebrated from 1999 onwards.

This outlay substitute is useful since a listed companies are an critical subset of a economy. As an example, a vast fragment of a taxes paid by all firms emanate from these firms. Many Indian laws are excessively limiting on vast firms. This has combined incentives for vast firms to organize themselves as a heart of contracts, where many elements of prolongation are finished by satellite firms. we have anecdotal justification about one vast listed firm: for any worker seen on a books of a vast firm, there are dual employees in a surrounding ecosystem of tiny firms where sub-components of a prolongation routine are engaged out. Hence, a quite vast tie of a economy is celebrated when we see a outlay of these vast firms.

Identifying recessions in this data

The heuristic used for identifying downturns is to demeanour for a constant duration of almost below-median expansion of that during slightest one entertain has near-zero favoured growth. This yields a following dates of recessions:

Q4 2000 to Q1 2002, a downturn that was compared with a IT bust and a 9/11 attacks.
Q4 2008 to Q1 2009, a downturn compared with a tellurian crisis.
A downturn that began in Q1 2012.

This is not a NBER proceed of identifying peaks and troughs. In a high expansion economy like India, we get expansion cycles and not business cycles in a required clarity of a term. Hence, for a purpose of identifying dates of recessions, it is some-more engaging to brand a durations of intensely low growth.


The graph above shows seasonally practiced quarter-on-quarter favoured expansion of a revenues of vast companies. This shows indolent expansion all by a benefaction downturn. In a Jan-Feb-March 2015 quarter, expansion was quite weak.

This is a magnitude of macroeconomic conditions that involves a slightest assumptions about measurement. It admittedly usually measures what is going on with a vast firms. So far, we have not shifted from favoured to real.


The graph above shifts from favoured to real, regulating CPI-IW as a magnitude of inflation. The extended design celebrated is similar. Both array advise that a retrogression that began in Q1 2012 has not ended.

How does a devoted magnitude review opposite aged and new GDP data?

So far, we have looked during quarter-on-quarter seasonally practiced expansion rates. We now switch to year-on-year expansion rates, since a new GDP information has a brief time array and anniversary composition is not possible. We use favoured information to equivocate a controversies of converting to real. The pivotal graph is placed below.


The red line is a aged quarterly GDP series, with bottom year 2004-05. The blue line is a new array with a 2011-12 base. The black line is assembled from organisation data. The 3 recessions are shown as shadowy regions. This graph shows 3 things:

1) Output expansion as seen in a sales of vast firms has some-more impassioned fluctuations when compared with GDP growth. In good times, income expansion of firms has left all a approach adult to 25 percent favoured year-on-year growth, and in bad times, this has forsaken to near-zero levels.

2) The downturn that began in Q1 2012 has not ended. There was usually proxy improvement, maybe aided by a decrease in wanton oil prices and a certainty compared with a choosing outcome of May 2014. The latest data, for January-February-March 2015, is a misfortune celebrated within this recession.

3) The new GDP information is some-more confident than a aged GDP data.

In a duration heading adult to Jun 2012, there was a good agreement between a GDP (2004-05 base) and a organisation data. On average, a GDP information was reduce by -.39 commission points.

Something altered in a methods used by a CSO in Jun 2012 (we know not what). From this date onwards, GDP information (old base) started display incomparable values when compared with a organisation data, with a opening of +5.1 commission points.

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This opening has risen with new GDP data, where a suitable and allied magnitude is a GVA. This is display expansion that is 7.9 commission points higher, on average, than a organisation sales data.

This justification does not advise that a new GDP information is off by 7.9 commission points. As a graph shows, organisation sales information has a bigger width when compared with a GDP data. In good times, a organisation information shows really high expansion and clamp versa. The problem is maybe singular to a inequality between a aged information and a new data, that seems to be 190 basement points.

Is expansion improved with smaller firms?

One member of a methodological alleviation finished by a CSO in a new information is reaching over vast firms traded on batch exchanges (“listed companies” in a Indian parlance) to smaller firms. It is argued that these smaller firms are flourishing many faster. In sequence to exam this hypothesis, we utilize annual information for a many incomparable star of private firms (“unlisted companies” in a Indian parlance). The CMIE database now has clever coverage of unlisted firms, that creates this research feasible.


The formula uncover that in new years, a opening of a unlisted companies was worse. This can't be an reason for a high GDP expansion seen in a central data.

Corroborating evidence: Export demand


The graph above superposes products and services exports from a Balance of Payments information opposite a exports of products and services seen in a organisation data. The BOP information is good totalled and hence trustworthy. This gives us an event to review a design seen by organisation information contra a design for a full economy. Here also, a vast firms mostly seem to have some-more volatilility of bang and bust in exports growth, when compared with a altogether data.

This shows a duration of indolent exports expansion in a post-2012 period.

Corroborating evidence: Investment demand

We obtain devoted justification about investment by firms by a CMIE Capex database, that marks all projects currently underneath implementation.


The graph above shows point-on-point expansion in infrastructure projects that are personal as ‘under implementation’. As there is no seasonality in this series, a elementary point-on-point expansion magnitude is useful. Many of these projects have been stranded on comment of process bottlenecks, and it was hoped that a new BJP supervision would be many some-more effective during stealing these bottlenecks. In a duration after 2012, in many quarters, a expansion has been next a prolonged run median (the dashed line).


Infrastructure is usually one member of altogether investment. The graph above shows point-on-point expansion in all projects that are `under implementation’. As there is no seasonality in this series, a elementary point-on-point expansion magnitude is useful. This shows a slight liberation from a inlet gifted before to a elections. However, we sojourn nearby or next a long-run median value (the dashed line).


Project announcements are a magnitude of business confidence. When firms are profitable, and financing is not a constraint, some-more projects get announced. The graph above shows indolent expansion in plan announcements in a third recession. In many quarters, sub-median values have been observed. (There are some methodological issues in how we erect this measure, that tend to somewhat exaggerate expansion in a latest quarters).


The new GDP information facilities many improvements in methodology. However, there is something going on, that we do not nonetheless understand, that is a means for concern. The intensely confident design shown in a new GDP information does not block opposite what is seen in other data. Firm information expelled during quarterly and annual frequencies is micro information where any record can be perused and checked. Investment information is a assembly of contribution about particular projects that can be perused and checked. BOP information is a sound magnitude of products and services being sole by India as we magnitude unfamiliar sell going into a country.

This hearing shows delayed growth. Investment information is sluggish. Export direct is sluggish. These are unchanging with a many devoted outlay magnitude — income expansion of vast firms.

The design appears to be one where a retrogression began in Q1 2012 and has not nonetheless ended.

This essay initial seemed on Ajay Shah’s Blog