The divergent views emerged regarding the growth of industrial sector in India. Industrial growth measured by the Central Statistics Office always differs with the statistics revealed by Index of Industrial Production (IIP) and Annual Survey of Industries. Thus, for a common man, it is extremely difficult to reach at a meaningful conclusion. Introduction of new methodology for the estimation of national income has made the situation’ more complex and complicated. The controversy over the new GDP series refuses to die down. Going by the latest estimates, the non-farm sector grew an impressive 9.2 per cent in the third quarter of 2015-16. One would be forgiven for feeling confused, but if the economy was truly growing at such breathtaking speed, what explains the growing clamour for a fiscal stimulus which is being demanded by the chieftains of industrial sector. The confusion over the numbers is because of the growing chasm between the Central Statistical Office’s GDP estimates and other key economic indicators which suggest sluggish growth at best. The greatest disconnect lies in the estimates of industrial growth.
According to CSO, industry grew at a scorching pace of 8-9 per cent in the third quarter (October to December 2015), with manufacturing sector clocking 12-6 per cent growth. In comparison, the index of Industrial Production (IIP) grew a mere 1-5 per cent, with manufacturing sector registering growth of only 0-9 per cent. Both of these figures are nowhere near the GDP number. The divergence between the two estimates is truly confounding. To be fair, there are many reasons for the divergent trends—
- IIP measures volume growth, while GDP measures growth in value added.
- The base years of the two indicators are different. The base year for GDP estimates is 2011-12, while the base year for IIP is 2004-05.
- Regarding the estimation of GDP the manufacturing sector has two components. The first component is the corporate data which is based on advanced filing of companies in stock exchanges, while the second non-corporate component is based on IIP, and a weighted average of that is considered. Companies account for 65 per cent of manufacturing.
- Annual Survey of Industries data, however, does not capture unregistered entities and hence there were some differences in the numbers between the GDP data and ASI data. Otherwise, ASI is a comprehensive measure of industrial growth as it covers both registered small and registered medium industries where all units employing at least 10 workers and using power, or 20 workers and not using power are covered.
- The CSO uses the Ministry of Corporate Affairs 21 database and the ASI estimates to arrive at estimate of gross value added.
- The ASI data comes with a lag of two years whih GDP estimates are on quarterly basis.
But considering the backdrop of growing concerns o: hollowing out of domestic manufacturing, the GD” numbers are extraordinarily high.
- The IIP is a pure physical ‘volume’-based measure csr production. It does not adequately reflect the ‘value that is added by virtue of quality improvements higher production efficiencies, or marketing an: branding innovations.
- The new series of national accounts is seen as providing more robust estimates of gross value addition happening, taking into account the value cc output less the value of inputs used in a particular production process. On the other hand, the IIP, whic: is simply a production volume indicator, might be understating the extent of value-added growth ir manufacturing.
CONFOUNDING SIGNS % growth •Note: Gross value added has been estimated on the basis of quarterly results of ove- 1000 companies
Source: Mospi, Capitaline Compiled by BS Research Bures.
In order to arrive at a comparable estimate of thr first component i.e, the corporate sector’s growth performance, Business Standard estimated gross value adder for over 1,000 companies. Gross Value Added (GVA : estimated as profits minus interest payments pi_ depreciation and compensation to employees.
According to this estimate, GVA grew 3.8 per cerr over the April to December 2015 period. Value added ha grown even though sales have gone down because prot:- have grown due to the declining input (commodity) cos: and higher wages and depreciation. By comparison, CSC *
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