GDP calculation is mysterious in Q1 FY2017-18, reality GDP is only 3.4%

Look at this table given by Govt, for releasing the Q1 2017-18. Link here.
http://www.mospi.gov.in/sites/default/files/press_release/PRESS_NOTE-Q1_2017-18_31aug17.pdf

The amount in the row titled "Valuables" jumped from Rs 34687 Crores in Q1 of 2016-17  to Rs 105716 Crores, a whopping 205% increase. Valuables is Jewels and Art works added in the nation at Constant price as per RBI definition. Link here: https://www.rbi.org.in/scripts/PublicationsView.aspx?id=13552

The Govt has not explained this anomaly. Let's do an average of Q1/2014-15 and Q1/2015-16 and let's use that number to find the Total GDP.
Average Valuables for 2017-18 = [Rs 40244 + Rs 34687 ]/2 ===> Rs 37400(~)

After replacing this new Average in the above table, let's do GDP total: ==> Rs 3041829 Crores.

Now, how much is growth?   { [ Rs 3041829(Q1-2017/18)   - Rs  2941846(Q1-2016/17) ] / Rs  2941846 * 100 }
                                       
                                           ===> 3.4%

So, if we remove the anomaly of Jewels/Diamonds/PreciousStones/Arts under the Valuables Row, the growth for Q1-2017-18  is only at 3.4%.

Or the Govt need to explain how the Valuables jumped 200% in Q1 2017-18. 

Why India's GDP growth of Q2 FY2018 would be around 5% or lower?

During the past few weeks, there is huge conversations on India's GDP growth and the possibilities of even lower growth this year 2017-18. This was culminated from the govt's release of GDP growth rate for Q1-FY2017-18 at 5.7%. This is one of the lowest growth rate during the past 3 years.

In this background, it becomes important to revisit the growth projections posted by various rating agencies, researchers etc. The SBI research, ADB, Subramanian Swamy and Morgan Stanley have lowered their GDP projections from their earlier high projections for current year 2017-18.

I believe the following are some of the reasons that the Govt overlooked in providing projections at 7.5% for the current year. Now, given the release of GDP growth Q1FY2018   at 5.7%, it is impossible to achieve the Govt's projection of 7.5% growth for current year.

The factors which would impact the GDP growth of current year.

1. GDP Calculation Method switch in 2015.
The Govt of India, switched the GDP calculation method of factor-cost basis to market cost expenditure basis in Febuary 2015. The factor-cost GDP calculation was introduced by Nehru's govt,  during early years of  India's industrialization. That was based on mix of Fabian Socialism and Soviet's Marxim's   economic theories.  However, the nations all over the world have moved to more modern methods of GDP calculation.   Even the USA had moved from GNP to GDP in year 1991.

India could not  affort to continue to use the orthodoxy GDP calculation methods. Mr. Modi's govt opted to the new method starting from 2015. However, the problem is to calculate growth of every quarter after Q1 2015 for first 4 quarters starting from Q1 2015, India did not have market cost expenditure numbers measured in that method in previous 4 quarters. So, between Q1 2015 and Q1 2016, whatever method India used was not completely reliable. The high growth of  year 2015 and 2016 could be attributed to this malaise and confusion. But, now the data is available for year 2016 measured exactly in market cost expenditure basis. Comparing current year 2017's quarterly GDP growth, no longer has last year's advantage.

2. "Inflation Margin Crop" - missing
What is Inflation Margin Crop? Well, it's well known fact that India's Inflation measurement is not      accurate during the past 20 years. Although India has made profound improvement over the years to calculating Inflation more accurately. How does it impact GDP calculation?  India now uses market cost expenditures since 2015. During the past 6 months, the Inflation is the lowest in years in India. During the high inflation times, the adjustment that was made to arrive at Constant price GDP numbers had added benefit. Because the real market inflation has been higher than Govt's published inflation. The gap between real inflation and published inflation worked out to inflate the GDP numbers published at constant price basis. This is the "Inflation Margin Crop". Since the Inflation is so low past 6 months, the Inflation Margin Crop got reduced significantly. That is bound to show lower GDP growth at least for this current year, due to continuing low inflation.

GST: Stabilization or Sterilization?

The GST baby is out of incubator in India. It appears from various reports that the GST rollout is mostly successful in it's implementation, except few technology glitches.

Now, is the time to measure the results against the goals? Or is it heading in the right direction towards the goal of "Achie din"? Or is it helping to balance fiscal position of India?

To answer all these questions, one needs to look at one year of GST performances and GST indicators.

Arun Jaitely climed the Revenue of Rs 95,000 Crores for the first month GST in place, for July 2017. However, as usual, the minister failed to say the Media that there is this Input Tax Credit, which is allowed as part of GST regime, filed by the traders are at Rs 62,000 Crores. Although the Govt questions the genuineness and validity of the huge ITC filing, it must provide the ITC for GST to succeed in the forthcoming months and keep the Credibility of Govt.

If the Govt refuses to recognize the ITC of July, the risk that traders will look to do business outside GST, and that again threat to the macro economy.

What is GST sterilization? Well, Govt attempts to bring as much informal economy into formal economy.  Implementation of GST is the first sterilization step towards this. The Sterilization is success. Will the stabilization of GST becomes success or not, would not be known until a year later!  

India's economy 2016-17. Hidden facts tell true story.

I. Investment proposals: Rs 22,00,000 crore in 2008-09 

                                        Rs 10,64,000 crore in 2014-15 

                                        Rs 8,00,000 crore in 2015-16. 

These numbers reveal that the Investments have been going down for many years. Without improving the investments, Economy can't sustain growth momentum anymore. No fruitful employment will be created.

II. NPAs:  Called as Bad Loans in America, the NPAs have hit Rs 1,26,672 Lakh Crores, reached all time high of  7% of the Govt's total budget of Rs. 17,94,892 Lakh Crores. This sounds like a familiar story in Greece, Columbia, Zimbabeve and Venezuela. Those nations reached near Bankruptcy during the past few years.




III. Govt, revised down the direct taxes by 11% on the 28th Feb 2016 for the FY 2015-16.  

IV. With all these facts circling in Media houses, more and more Economists are becoming vary of India's GDP growth numbers. 

Income Tax and Government of India - Solve the mathematical puzzle!

I compliment the Finance Minister for achieving the fiscal deficit target of 3.9 per cent in the current year and fixing a target of 3.5 per cent for 2016-17. That one decision has lent a measure of credibility to the government’s professed commitment to the path of reform.

There are, however, questions about the fiscal math of the budget.

Let me go back to my column titled ‘Oil Windfall: Gone With the Wind’ (10 January 2016). The budget documents have confirmed the initial estimates. The government reaped a windfall of about Rs 1,40,000 crore due to the decline in crude oil prices. The bulk of the gain has been used in the following manner in 2015-16:

Gap in Direct Tax Receipts: Rs 46,000 crore

Gap in Other Receipts: Rs 44,000

Lower Borrowing due to Lower Nominal GDP: Rs 20,000

A missed opportunity

As I had feared, no part of the windfall has been used for additional capital expenditure or socially useful programmes. In fact, total capital expenditure has fallen from Rs 2,41,430 crore in the budget estimates to Rs 2,37,718 crore in the revised estimates.

It was a missed opportunity. If the government had collected its budgeted direct taxes and had achieved its disinvestment target, it could have used a substantial sum for additional capital expenditure. That would have given a big boost to aggregate demand. So, while the government met the fiscal deficit target of 3.9 per cent, it was achieved in an unsatisfactory manner — so, no high marks for fiscal management.

Let us now look at the fiscal deficit target of 3.5 per cent fixed for 2016-17.

Total receipts and total expenditure will be up from Rs 17,85,391 crore in 2015-16 (RE) to Rs 19,78,060 crore in 2016-17 (BE). That is a huge jump of Rs 1,92,669 crore. Of the total expenditure, Rs 5,33,904 crore will be financed by borrowing (the fiscal deficit) which is about the same level as the borrowing in 2015-16 (Rs 5,35,090 crore).

Ads by ZINC

The fiscal math puzzle How does the government propose to garner additional resources of Rs 1,92,669 crore? This is where the math becomes a puzzle. From the budget documents, the following appear to be the main sources (the numbers have been rounded off):

Net Tax Revenue: +Rs 1,07,000 crore

Non Tax Revenue: + Rs 64,000

Other Receipts: + Rs 31,000

These are ambitious projections of increases in receipts. The assumptions are that direct tax receipts will grow by 12.6 per cent as against 8.3 per cent in 2015-16; spectrum auction will bring in an additional Rs 42,000 crore which will boost Non-Tax revenue; and isinvestment will yield an additional Rs 31,000 crore over the level achieved in 2015-16. If these assumptions must be proved to be correct, it will require extraordinary capacity and drive in the Department of Revenue and the Department of Disinvestment. It will also mean that the telecom service providers will be ready to stake more money for acquiring spectrum.

What is of concern is that, should the assumptions prove to be incorrect, there does not seem to be a Plan B. Will the government cut subsidies or other expenditure? There are already complaints of insufficient allocation to the social sector. Nor is there scope to cut defence expenditure. Perhaps, some payments may be staggered while implementing the Pay Commission report or the One Rank One Pension scheme — both beehives.

The other doubtful part of the fiscal math is the growth of GDP. In 2015-16, nominal GDP grew by 8.6 per cent. The assumption for 2016-17 is that nominal GDP will grow at 11 per cent. The revenue estimates (both tax and non-tax) are crucially dependent on GDP growth. We may keep our fingers crossed.

Off-budget borrowings
There is another aspect of the budget that affects the credibility of the fiscal math. These are estimates of borrowing by the Ministry of Railways and the Ministry of Road Transport. Such borrowings, called ‘extra budgetary resources (EBR)’, have been kept outside the balance sheet of the government. In the case of Railways, the EBR is projected to jump from Rs 48,700 crore in 2015-16 to Rs 59,325 crore in 2016-17 and in the case of Road Transport from Rs 28,000 crore in 2015-16 to Rs 59,279 crore in 2016-17. Apart from the capacity to borrow, the wisdom of such off-budget borrowing is open to question. The correct approach would be for the government to borrow and provide the funds to the two infrastructure ministries in the form of budgetary support. Borrowing large amounts by the two ministries (or their public sector arms) may be unexceptionable in terms of accounting but is not likely to go down favourably with the eagle-eyed analysts and rating agencies. I shall not be surprised if they will add these extra budgetary borrowings to the overall fiscal deficit!

The fiscal sum (3.5 per cent) is indeed the right answer, but the fiscal math is puzzling.

Website: pchidambaram.in

India Budget Fiscal Year 2017

The budget's changes on tax and duties changes are credit positive for energy and commodity producers, but negative for automakers. Changes to levies on crude oil will lower cash production costs for national oil companies, but will not compensate for the impact of lower oil prices.

Finally, the budget is positive overall for India's securitisation markets as changes in the distribution tax norms for securitisation trusts will improve investors' post-tax returns and make investments in securitisation products more appealing, which could attract a new class of investors to the asset class.

Achieving the fiscal deficit target of 3.5% will be challenging if the GDP growths of past years are revised downwards. The CSO wing of Govt of India started a new methodology of GVA using International Standards, foregoing the previous sample method. Since this is a new scheme, there could be potential downward revisions possible this year in 2016.

India did not reduce the Gasoline and Diesel prices in accordance with the lower crude oil price which dropped significantly over the past 18 months. When the crude oil prices head upwards, the govt might run down to lose revenue if it were to keep the gasoline and diesel prices at current levels.

The infrastructure spending roads alone will not boost the nation's GDP growth, as expected by the many economists. There is a disconnect of world's other developed nations and India in highway and roads usage pattern. Even when you build world class highways, 80% of trucks on highway do not engine capacity to go beyond 35mph speed. Having this underlying archaic issue of truck speeds, any amount of highways building in India will not result in speedier movement of goods and services any time soon in the next 10 years. 

The Finance Minister has chosen to supply Dialysis equipments and services in health care programme. This is a notorious issue in India. The Central Government keeps announcing new scheme and freebies to Indian citizens on healthcare support. However, many state governments already in the process of offering free Health Care insurances. There seems to be no cohesiveness between central and state governments to design, equip, modernize and deploy sophisticated healthcare programme for the nation. 

No specific Infrastructure proposal has been announced for Major City traffic congestion. Numerous studies have shown the GDP loss due to traffic congestion would be in the ranges of Rs 200 Crores to Rs 20000 crores in Metro cities. 

Banks get a big boost: Rs 25,000 crore towards recapitalisation of public sector banks. However, given the bad loans of Rs 1.3 Lakh crores, the amount Rs 25,000 crores is not enough. 

Where's promised cheap Gasoline after Crude Oil Plunged 50 percent?

From the August 2014 to August 2015, the Crude oil prices have dropped 60%. Where as the Gasoline for the same time has only dropped from $3.40 to $2.63, which is only 22% drop. What happened to promise that the cheaper Crude price means, cheaper gasoline? For the month of July 2015 at $2.70 a gallon, the EIA analysis shows that 46% is for Crude, 25% for refining, 13% distribution&marketing and 16% for taxes. So, what really happened? In California, the average price of regular gasoline across CA was about $3.90. That's only 10 cents lower than last July's average price in CA. This is even more mysterious as why the Gasoline price seem to have divorced from Crude oil price. We know that there a lag time of 3 months, from the crude oil price drop in the markets, to get the crude oil to refinery at the new market price. Here, the Crude oil prices have been continuously falling since last August. So lag time is not at play for not seeing the lower prices? So, what is the reason?
The bottom line: U.S. oil refineries have profited from processing cheap oil and passing only some of the savings to consumers.