Wednesday, 7 May 2014
Raised Questions and Made Front Page News - My First Article
Economists question 8.8% Q1 GDP growth number
NEW DELHI: The government's claim that the Indian economy grew at its
fastest pace in over two years in the April-June quarter has been
questioned by economists, who said the huge gap between the different
growth estimates was confusing.
The value of all goods and services produced by India, or the gross domestic product (GDP), grew 8.8% in the first quarter of the current fiscal, according to the `supply-side' growth estimate arrived from various sectors such as agriculture, industry and services. The numbers were 6% a year ago and 8.6% in the previous quarter.
But, the robust 8.8% growth figure was not corroborated by the `demand side' of the equation based on transactions in the market place. The demand number—calculated from private and government consumption, investment and net exports—showed that the economy grew as low as 3.7% during the first quarter of the current year. On an average, the divergence is well below 0.5%, though on a few occasions it has touched 2-3%.
The value of all goods and services produced by India, or the gross domestic product (GDP), grew 8.8% in the first quarter of the current fiscal, according to the `supply-side' growth estimate arrived from various sectors such as agriculture, industry and services. The numbers were 6% a year ago and 8.6% in the previous quarter.
But, the robust 8.8% growth figure was not corroborated by the `demand side' of the equation based on transactions in the market place. The demand number—calculated from private and government consumption, investment and net exports—showed that the economy grew as low as 3.7% during the first quarter of the current year. On an average, the divergence is well below 0.5%, though on a few occasions it has touched 2-3%.
"I think there is a methodological mess in the GDP estimates," said Mridul Saggar, chief economist at Kotak Securities.
Indirect taxes are netted out and subsidies added to the demand side of the GDP figure to arrive at the supply-side estimate. Since excise duties were rolled back and subsidies cut, the demand-side GDP growth should have been higher than the supply-side number. But, it was the reverse, as per government data.
"The divergence (of 5.1%) is at a record high and also inexplicable... Two-thirds of the demand-side GDP growth in the first quarter of this year is because of discrepancies. Excluding discrepancies, 1.4% growth was one of the lowest since start of the quarterly data in the first quarter of FY00," said Sujan Hajra and Gautam Singh of Anand Rathi Financial Services.
An official in the ministry of statistics and programme implementation, which is responsible for compiling the data, dismissed the concerns over the quality of data. "We have checked the data. There is some seasonal impact as well as some differences in import and export figures which can't be simply calculated on the basis of inflation," he said.
Another worrying sign in the government data is the dismal growth in private consumption, which rose 0.3% in the first three months of the fiscal. "It's lowest in a decade. Government consumption declined 0.6% — the first fall in 11 quarters," said Mr Hajra and Mr Singh as they maintained a growth target of 6.5% for the current fiscal.
According to Abheek Barua, chief economist at HDFC Bank, there is a "major discrepancy in the data as there is huge variance between con-sumption numbers at current and constant prices". For instance, the demand-side GDP grew at 24.8% in nominal terms or current prices, but in real terms — at constant prices net of inflation — the growth is as low as 3.7%. The difference is much more than the headline inflation number, which averaged at 11% in the first quarter this fiscal. "So, are the inflation indices missing something or are our GDP numbers wrong?" said Mr Saggar.
Indirect taxes are netted out and subsidies added to the demand side of the GDP figure to arrive at the supply-side estimate. Since excise duties were rolled back and subsidies cut, the demand-side GDP growth should have been higher than the supply-side number. But, it was the reverse, as per government data.
"The divergence (of 5.1%) is at a record high and also inexplicable... Two-thirds of the demand-side GDP growth in the first quarter of this year is because of discrepancies. Excluding discrepancies, 1.4% growth was one of the lowest since start of the quarterly data in the first quarter of FY00," said Sujan Hajra and Gautam Singh of Anand Rathi Financial Services.
An official in the ministry of statistics and programme implementation, which is responsible for compiling the data, dismissed the concerns over the quality of data. "We have checked the data. There is some seasonal impact as well as some differences in import and export figures which can't be simply calculated on the basis of inflation," he said.
Another worrying sign in the government data is the dismal growth in private consumption, which rose 0.3% in the first three months of the fiscal. "It's lowest in a decade. Government consumption declined 0.6% — the first fall in 11 quarters," said Mr Hajra and Mr Singh as they maintained a growth target of 6.5% for the current fiscal.
According to Abheek Barua, chief economist at HDFC Bank, there is a "major discrepancy in the data as there is huge variance between con-sumption numbers at current and constant prices". For instance, the demand-side GDP grew at 24.8% in nominal terms or current prices, but in real terms — at constant prices net of inflation — the growth is as low as 3.7%. The difference is much more than the headline inflation number, which averaged at 11% in the first quarter this fiscal. "So, are the inflation indices missing something or are our GDP numbers wrong?" said Mr Saggar.
The Volatile Dollar Flows
Falling Rupee, high interest rates bring
home a flurry of Dollars
Rishi Shah, ET BureauNov 19, 2011, 06.49am IST
NEW DELHI: The combination of high interest rates and a sharply dropping rupee may be a crushing burden for domestic industry, but there is one section that is not complaining. Indians working overseas are sending back record amount of dollars to take advantage of the strong greenback and lucrative returns offered by banks in India, thus providing a timely bonanza for the government battling a rising current account deficit.
In September alone, a record $565 million flowed into so-called non-resident (ordinary), or NRO, accounts - the highest in at least 30 months. In August, too, the inflows were rapid, totalling nearly half-a-billion dollars.
Dollars flowing into NRO accounts are important because they are denominated in rupees, meaning that the foreign currency stays in the country and all withdrawals can only be in rupees. Only up to $1 million can be repatriated every year.
The rupee has depreciated almost 17% since August, dropping from about 44 to a dollar to 51.33 on November 18 over concerns about worsening current account deficit.
Trend to Continue
The possibility of capital flows drying up because of the global economic turmoil has added to worries. Besides, banks are now offering 8-10% returns on NRO deposits, making a compelling case for Indians working overseas to send dollars home instead of parking them in low-return deposits overseas.
The trend of rising NRO inflows has continued into October and November and this will persist as the interest rate differential between developed nations and India is at an all-time high, bankers said. "Inflows into the NRO accounts have jumped on account of the depreciating rupee and higher interest rates," said MD Mallya, chairman and managing director of Bank of Baroda.
At the end of September, NRO deposits accounted for $10.7 billion of the nearly $50 billion in deposits from non-resident Indians. NRE accounts with no limits on repatriation had $23.5 billion and foreign-currency deposit accounts the rest.
"The increase in inflows into NRO accounts could help finance the current account deficit for the year," said Madan Sabnavis, chief economist, CARE ratings. Because of a sharp drop in exports growth, India's tradedeficit has widened to nearly $20 billion, and is expected to worsen current account deficit to 3% of GDP from 2.6% of GDP last year.
India had already received almost $2 billion in NRO accounts in the first six months of the current year against $2.2 billion in the whole of last fiscal. Interest rates on NRO accounts float in line with what banks offer to their domestic depositors. The increase in remittance is also because of the sustained high inflation. "Sustained high inflation and the onset of the festival season have also resulted in increased inflows from NRIs," said Virat Diwanji, head of branch banking at Kotak Mahindra Bank.
While central banks in most countries have been cutting rates to revive collapsing growth, the RBI has been tightening money supply to rein in inflation, which has been consistently over 9% for nearly a year. In most of the developed world, policy rates are close to zero. The RBI has increased key rates by 13 times over the last 20 months, increasing deposit rates for individuals. "We have also experienced increase in inflows into NRO accounts and expect the trend to continue," said Diwanji.
Food Inflation - 2011-12's Raging Theme
Food inflation: Veggies stay high in winters, eggs on boil in summers
NEW DELHI: If food inflation
seems to be pinching more, it is because vegetable prices barely
decline in winters, milk rises through the year and egg prices remain
high in summers - all because of rising demand.
Over the years, the seasonal variation in prices has dropped and consumers do not have the option of shifting to cheaper produce to keep daily costs down, says a recent Reserve Bank of India study. "Seasonal variation for wholesale price index for 'all commodities' remained low and declined in recent years," it notes. Sunil Sinha, senior economist, Crisil, says: "People are feeling the pinch of inflation more because of the declining seasonality in prices."
Over the years, the seasonal variation in prices has dropped and consumers do not have the option of shifting to cheaper produce to keep daily costs down, says a recent Reserve Bank of India study. "Seasonal variation for wholesale price index for 'all commodities' remained low and declined in recent years," it notes. Sunil Sinha, senior economist, Crisil, says: "People are feeling the pinch of inflation more because of the declining seasonality in prices."
The study shows that the seasonal variation in prices of proteinbased
foods has been on the decline in the past 15 years, confirming the rise
in demand because of higher incomes.
Seasonal variations largely result from climatic conditions in the case of food articles, though festivals can also at times cause prices to spike but these variations tend to moderate quickly. The RBI study uses an elaborate methodology (X-12 ARIMA) to measure seasonality, but a simple difference between peak and trough prices shows the trend well. NR Bhanumurthy of the National Institute of Public Finance and Policy says prices have been moving up consistently during the last few years rather than going through seasonal variations, a trend that people have come to expect.
This is borne out by the postmonsoon experience last year, when despite bountiful rains prices continue to rise. A repeat seems to be playing out this year as well. Vegetable prices have already risen by 64% since March end. Inflation in vegetable prices is running at 13.01% while the food inflation is 9.32% as of October 1. The analysis of seasonal changes over times allows policymakers to pick up early trends that are long-term in nature.
Economists contend that the increase in prices consistently is due to the structural shift in demand where people have started demanding certain food items more through the year while supply hasn't been able to keep pace. "Inflation has become structural in nature," said Indranil Pan, chief economist, Kotak Bank.
The high input costs and rising wages could also be keeping prices up through the year. DK Joshi, chief economist of Crisil, does not see anything wrong with the decline in seasonality, but calls for addressing the structural pressure that is causing prices to rise steadily.
In the long run, only higher public investment in agriculture and attracting private investments can help improve agriculture efficiency and increasing production. "There is a need to improve the production and marketing efficiency of these commodities. Role of technologies to reduce cost and increase production, and effectively linking production centers with the consumers, would control the prices of these commodities," said PK Joshi, agricultural economist at IFPRI.
Seasonal variations largely result from climatic conditions in the case of food articles, though festivals can also at times cause prices to spike but these variations tend to moderate quickly. The RBI study uses an elaborate methodology (X-12 ARIMA) to measure seasonality, but a simple difference between peak and trough prices shows the trend well. NR Bhanumurthy of the National Institute of Public Finance and Policy says prices have been moving up consistently during the last few years rather than going through seasonal variations, a trend that people have come to expect.
This is borne out by the postmonsoon experience last year, when despite bountiful rains prices continue to rise. A repeat seems to be playing out this year as well. Vegetable prices have already risen by 64% since March end. Inflation in vegetable prices is running at 13.01% while the food inflation is 9.32% as of October 1. The analysis of seasonal changes over times allows policymakers to pick up early trends that are long-term in nature.
Economists contend that the increase in prices consistently is due to the structural shift in demand where people have started demanding certain food items more through the year while supply hasn't been able to keep pace. "Inflation has become structural in nature," said Indranil Pan, chief economist, Kotak Bank.
The high input costs and rising wages could also be keeping prices up through the year. DK Joshi, chief economist of Crisil, does not see anything wrong with the decline in seasonality, but calls for addressing the structural pressure that is causing prices to rise steadily.
In the long run, only higher public investment in agriculture and attracting private investments can help improve agriculture efficiency and increasing production. "There is a need to improve the production and marketing efficiency of these commodities. Role of technologies to reduce cost and increase production, and effectively linking production centers with the consumers, would control the prices of these commodities," said PK Joshi, agricultural economist at IFPRI.
My Award Winning Article from 2011 - The Best Business Article, 2011
Copper inflated by $6.3 billion in
unending exports mystery
Rishi Shah & John Samuel Raja D, ET Bureau Dec 26, 2011, 11.51am IST
NEW DELHI: Earlier this month, the government admitted to overstating export numbers for the first seven months of 2011-12 by $9 billion because of computation errors and said it would review the data. While it is rechecking, it may want to review the 2010-11 export numbers too. ET probed deeper into the astonishing 80% increase in engineering exports for that year, and found no explanation for the highest increase by category - 350% - in copper.
In value terms, that is $6.3 billion - increase to $8.1 billion, from $1.8 billion - of unexplained copper exports. Higher copper prices don't fully explain it as that increase in 2010-11 was only 33%. So, ET went top-down and knocked on each of the four links in the copper chain, but neither data nor officials could justify this sharp rise. Not copper manufacturers, not makers of an essential input, not traders, not even the government.
When we showed data on copper exports to Shakeel Ahmed, chairman and MD of Hindustan Copper, he said: "There has been some mis-reporting in data, knowingly or unknowingly."
As per the commerce ministry website, 781,000 tonnes of refined copper was exported in 2010-11. But, asks Ahmed: "How could so much be exported when India's entire production that fiscal was an estimated 650,000 tonnes?"
Emails and calls to Anup Pujari, the director-general of foreign trade, who heads the body that looks after trade policy formulation, went unanswered. An October 10 report by Kotak Institutional Equities that analysed overall export data alludes to the possibility of money laundering.
Its authors, Sanjeev Prasad, Sunita Baldawa and Amit Kumar, write: "Given limited available data, we are cautious about drawing definitive conclusions...(but) some reports have alleged that some individuals may have been compelled to bring back funds through the 'official' route by over-invoicing exports or even resorting to fraudulent exports."
STOP 1: ENGINEERING EXPORTS BODY
To make sense of the copper export numbers, our first stop was the Engineering Exports Promotion Council(EEPC), a body set up by the ministry of commerce and industry to drive engineering exports.
Suranjan Gupta, senior joint director, attributes the spike in copper exports to a policy change. In February 2010, the government increased the incentive for Indian copper refiners to import scrap copper, process it and export it.
Value-addition norms eased
The government reduced the minimum value-addition requirement for copper cathodes (essentially sheets) and wires made from scrap copper to 8%, from 15% earlier. So, if an Indian refiner imported $100 of scrap copper, the earlier policy mandated a minimum finished-product price of $115 for it to be exported. This was now reduced to $108. Gupta says "it is likely" that Indian companies imported scrap copper in large quantities, converted it into sheet and wire, and exported those to China in a big way. China consumes about one-third of the world's copper production. According to Gupta, in 2010-11, China faced a 40% deficit in copper products.
The same year, he adds, India's scrap copper imports increased by 161% and its exports of copper sheets to China rose 917%. Ruling out suggestions of over-invoicing, Gupta says: "We should be celebrating the role of our exporters rather than blaming them for over-invoicing." However, the ministry of commerce trade data for that period does not support Gupta's assertion. That data shows a 77% increase in imports of copper waste and scrap - to $625 million, from $352 million. Even at a minimum of 15% value addition, the older norm, $8 billion of exports seems far out.
STOP 2: SCRAP COPPER IMPORTERS
ET asked four active traders, based in Mumbai and Punjab, if there was a spike in scrap copper imports. "There is no surge in demand for scrap copper," says Suresh Mehta, director in Mumbai-based Asha Mercantile Private Limited. "In fact, it's only declining. I have stopped importing scrap copper, and others too are either importing at the same level or trying to opt out of copper."
Traders, say Mehta, are struggling to cope with the spike in copper prices, which means they need more money to buy the same amount of copper. In the past five years, he says, the price of scrap copper has jumped from $2,200 per tonne to $7,300 per tonne. According to Mehta, in 2010-11, the rise in price of scrap copper was relatively muted - from 370 per kg in March 2010 to 450 per kg in March 2011.
STOP 3: INPUT PROVIDERS
Another way to ascertain whether copper smelting in large numbers has occurred or not is to check the demand for borax, or boric acid. There are many ways in which copper can be smelted and using borax is one such. If the volume of copper smelting increased by more than 300%, the demand for borax should have increased too. There are two listed companies that sell boron products in India: Borax Moraji Limited andIndo-Borax & Chemicals Limited. There's no estimate in India for the market size of boron products, but two industry officials said these two were the largest.
According to the annual report of Indo-Borax & Chemicals, "boron materials are not found in India. The basic inputs have to be essentially imported". Indo-Borax's revenues increased by 15% in 2010-11, while Borax Moraji posted a 6% rise. The annual reports of both the companies attribute the growth primarily to higher prices. Borax Moraji, which is the bigger of the two, registered a volume growth of 0.3%. Officials of both companies could not be reached for comments.
STOP 4: COPPER MANUFACTURERS
Lastly, we asked producers if they produced more. Public sector undertaking Hindustan Copper has a monopoly in copper mining. However, its annual production of 3.6 million tonnes of iron ore meets about 4% of domestic requirement. With 1% copper content, it takes 100 tonnes of ore to make 1 tonne of finished copper.
In other words, Hindustan Copper's 3.6 million tonnes of ore can produce 36,000 tonnes of finished metal - about 5% of 2010-11 production. Thus, copper refiners such as Sterlite Industries (India) and Hindalco - the two biggest - rely on copper imports to meet demand. It's not known how much ore or scrap copper they imported. However, numbers on their copper sales are available. Let alone a spike, these show a fall in production in 2010-11. Sterlite, India's largest producer, posted a 9% drop in production of copper cathode and a 5% fall in copper rods.
Subscribe to:
Comments (Atom)