What Do You See? - created on OpenArt If anyone tells you how fast the Indian economy is growing, they’re just guessing. Because they don’t know. No one knows. All the official data on Indian GDP, whether from our government, or from international agencies, are only measuring one part of the Indian economy - the formal sector. Apart from agriculture, on which our statistics are pretty good, government data on the Indian economy is based on data from firms that are obliged to submit regular returns. In 2016, this sector accounted for 50% of the non-farm Indian economy. Since then, the government assumes, this percentage has not changed. So, once you have the data on the formal sector, you just need to double it, and you have a number for the whole economy - plus of course agriculture.
NCAER in the mid 90s had devoted a chapter (or more) to estimating the "black" economy on what was a pretty good and useful household/consumer survey.It would have covered the unrecorded economy. Its estimate put a fairly wide band on things - between 1.5x to 2.0 of reported GDP if I recollect, and even that could be debated - something the report itself was very honest about. The point you start with, viz, plenty of guesswork goes around for aggregate GDP holds, then and now. Let's call it some informed guesswork, where its likely the guesser's biases can creep in. Using the 7 largest FMCG companies (listed) for a point also has some limitations (I won't dwell on this). I would however, like to add a couple of things. Household debt as a % of GDP is by itself not alarming. Profile of household use of debt still suggests a huge component to what may be termed meaningful uses - homes, enterprises and businesses (a conscious effort to expand formal access included) and when read with NPAs that are steadily on the decline to historical lows - it may not be alarming. The use of the EMI etc on routine consumables is frequently engineered to where the trade discount turns up as interest paid to the EMI provider (just to cite an example). This has the simultaneous effect of a. reducing savings (due to interest payments); b. higher debt (now its outstanding borrowings on a balance sheet cut off date, even if short term), c. banking sector growth (more earnings) ; d. Corporate sector flattening (lower margins). All of this may hold true for non-consumables, where a housing loan will show up as huge interest costs in the initial years. I poked around to get a profile of where households spend their borrowed money and estimates vary. But if it's overextended borrowing, it will show up in NPAs. I'm not suggesting everything's cool and kicking, I don't know either. As an aside. Are there commentators from govt talking up the good things? yes. Why would any incumbent govt during election time say "we're doing terribly" ? and the opposition can't say "life's great but please vote for us". So that circus continues as it has for decades.
In the regular RBI reporting, home loans are a different line item from personal loans and credit card loans.
The borrowing on these two counts has mushroomed, and that is alarming.
Of course NPAs will be the definitive proof that the higher household debt has become a problem, but by then ot could be too late - worth keeping an eye out earlier in the game.
Doles and freebies encourage the “poor” not to work. These have become political compulsions for every party to remain in power or get elected. Each competes with the other on how much more they give.
How can an economy grow without checking such “self interest” legalised bribing. The other is life long pension for each time you are elected. Yes, each time. There are politicians who draw 6-8 pensions. They keep upping their rewards every now and then. Improving the condition of people and economy does not help them. So why should they bother.
Thanks for articulating the problem with the GDP as it is measured today. Are there good indicators which track the informal economy? I would think 3-wheeler sales, non-luxury phones, entry level 2-wheelers and 4-wheelers, etc. Are there any good resources where someone writes about the informal economy?
NCAER in the mid 90s had devoted a chapter (or more) to estimating the "black" economy on what was a pretty good and useful household/consumer survey.It would have covered the unrecorded economy. Its estimate put a fairly wide band on things - between 1.5x to 2.0 of reported GDP if I recollect, and even that could be debated - something the report itself was very honest about. The point you start with, viz, plenty of guesswork goes around for aggregate GDP holds, then and now. Let's call it some informed guesswork, where its likely the guesser's biases can creep in. Using the 7 largest FMCG companies (listed) for a point also has some limitations (I won't dwell on this). I would however, like to add a couple of things. Household debt as a % of GDP is by itself not alarming. Profile of household use of debt still suggests a huge component to what may be termed meaningful uses - homes, enterprises and businesses (a conscious effort to expand formal access included) and when read with NPAs that are steadily on the decline to historical lows - it may not be alarming. The use of the EMI etc on routine consumables is frequently engineered to where the trade discount turns up as interest paid to the EMI provider (just to cite an example). This has the simultaneous effect of a. reducing savings (due to interest payments); b. higher debt (now its outstanding borrowings on a balance sheet cut off date, even if short term), c. banking sector growth (more earnings) ; d. Corporate sector flattening (lower margins). All of this may hold true for non-consumables, where a housing loan will show up as huge interest costs in the initial years. I poked around to get a profile of where households spend their borrowed money and estimates vary. But if it's overextended borrowing, it will show up in NPAs. I'm not suggesting everything's cool and kicking, I don't know either. As an aside. Are there commentators from govt talking up the good things? yes. Why would any incumbent govt during election time say "we're doing terribly" ? and the opposition can't say "life's great but please vote for us". So that circus continues as it has for decades.
Specifically on household borrowing;
In the regular RBI reporting, home loans are a different line item from personal loans and credit card loans.
The borrowing on these two counts has mushroomed, and that is alarming.
Of course NPAs will be the definitive proof that the higher household debt has become a problem, but by then ot could be too late - worth keeping an eye out earlier in the game.
Doles and freebies encourage the “poor” not to work. These have become political compulsions for every party to remain in power or get elected. Each competes with the other on how much more they give.
How can an economy grow without checking such “self interest” legalised bribing. The other is life long pension for each time you are elected. Yes, each time. There are politicians who draw 6-8 pensions. They keep upping their rewards every now and then. Improving the condition of people and economy does not help them. So why should they bother.
Liked your thought.
Thanks, Sunil - we are becoming more and more welfarist.
Thanks for articulating the problem with the GDP as it is measured today. Are there good indicators which track the informal economy? I would think 3-wheeler sales, non-luxury phones, entry level 2-wheelers and 4-wheelers, etc. Are there any good resources where someone writes about the informal economy?
2-wheelers are indicative, I think, and we know that recovery there has been slow.
Need to think about this a little harder, but regular official data would be best.