State of Wilful Denial

The latest national income data released by the Central Statistics Office once again reinforces the view that the Indian economy is ailing. The second quarter of 2017–18 (July–September 2017) registered gross domestic product (GDP) growth of 6.3% over the same quarter of 2016–17. The government claims that this indicates a turnaround. The argument put forth by the government and parroted by the business press is the following: since January–March 2016, when GDP growth was 9.1%, the growth rate of every successive quarter has been lower than the preceding quarter, but the July–September 2017 quarter was higher than its preceding quarter. This, they say, is an indication that the slowing growth rate trend has been arrested. Unfortunately, this is incorrect. Growth rates of a quarter will make better sense if they are compared with corresponding quarters of previous years, since economic growth follows a certain seasonality. Looking at it this way, July–September 2017 has been the slowest second quarter yet recorded in the new series of National Accounts Statistics (NAS) data (base year 2011–12), that is, the slowest since 2012–13. The health of the Indian economy has worsened, and the government’s farcical narrative of a turn­around shows that it chooses to remain in a state of wilful denial.

In the new series of NAS, the economy tends to grow at a higher rate during the second quarter, usually higher by 1 percentage point compared to the other quarters. The only exceptions to this were the last quarter of 2015–16 and the first quarter of 2016–17, which were higher than the second quarters of their respective years. Going by this general tendency, it is very likely that the annual growth rate of the current year will be no more than 6.3%. Since 2012–13, the annual growth rate has never been higher than the second quarter’s growth rate. It is, therefore, reasonable to expect that annual growth for this year will be 6.3% at most, which is much lower than 7.1% in 2016–17 as per the advance estimates, and 8% in 2015–16 as per provisional estimates.