Arvind Subramanian Speaks To Prannoy Roy On Economy: Highlights

Arvind Subramanian said the figures of GDP growth could be a “rosier picture than the underlying reality”

Just look at the figures here, the figures suggests that the growth rate is plummeting in India; plummeting means it was 8% a short while ago and now it’s 4.5% in the most recent quarter and these are government sources. So Arvind, when it was 7-8%, you wrote that very strong paper with a lot of analysis of why our data is not too good; it’s probably 2.5% higher, so 8 would have been 5.5, so 4 is bad enough even its correctly 4. Could it be even less than that?

Arvind Subramanian- Well, you see, as you know that the GDP numbers are, you know becoming, you know, not as informative as it used to be, I mean there are difficulties with those numbers.

Prannoy Roy- Is it around the world recognized now that there are some problems with the numbers because it never used to be.

Arvind Subramanian– Yeah, I think now it is globally accepted that, you know, GDP numbers need some, you know, looking at carefully. So the answer to your question is four-and-a-half and four-and-a-half. You see, I can’t be precise but as we go through the indicators that we are going to go through now, you know to look at the more detail macro indicators, you know you get the impression that in fact maybe, even four-and-a-half is a picture, a rosier picture than the underlying reality.

Prannoy Roy- That’s shocking because I would be feeling awful about the country if it’s going at about four-and-a-half percent, I mean it’s back to old school Raj Krishna days and it could still be really 3%. That is just horrifying.

Arvind Subramanian– I can’t give a number. As we go through the indicators, we will see that in fact, it is something what we are going through as you said is a great slow down, it’s something that probably we haven’t seen for a very long time; 20-30 years you know; the real economy is in not just any ordinary slowdown.

Prannoy Roy– I really feel that’s the point that you highlight in this paper and I don’t think everybody has understood the magnitude of the problem. I knew we were in bad shape. But till I read your paper, I felt that was a problem, and I look at some of the indicators that make you even question whether 4.5% is depressingly low. If you look at imports, how bad is the Indian economy? Imports are as bad, almost as bad as 30 years ago. As you were saying we have never seen bad indicators for the last three decades. So in the current growth, imports are down to 6% and the capital goods industry, really important, almost proxy for investment, down 10%. When you have gone -6 and -10, you have to go back 30 years to find things similar. Look at that imports okay -16% and little more and capital good industry -9 very comparable and what was the growth rate 30 years ago? 1.1 with that kind of figures. So when we look at the figures today -6 and -10, what is the GDP growth? Is it really 4.5 based on the comparison we would have to question it?

Arvind Subramanian– See I think you know many, many not just there are also export figures, consumer good figures, tax revenue figures. In fact in the paper what we do is that we take all these indicators and then say let’s look at you know a previous era of a slowdown which is 2000 and 2002. Yeah, there what you find is that even though the GDP growth around then was four-and-a-half; all these indicators were positive. It’s only you have to go back to 1991 when growth was close to 1%.

Prannoy Roy– In a terrible slowdown of 2001-2002, these two indicators are actually marginally positive and others, and you still had 4.5% with positive, now it’s negative and you have to go back 30 years to find that, that is a real shocker! And that really does make you question whether with this kind of figures you can have 4.5. But anyway, we will get into as you say there more figures to point out to, let’s have a look at the Indian economy, the great slowdown, more indicators of that, just have a look at these first for example. In fact, if you look at finding consumer good production, growth rate, consumer goods, it’s not just capital goods, consumer goods production growth rate is falling. Look at that from 5% just 2 years ago to 1% now. 1% in consumer good production is worrying-isn’t it?

Arvind Subramanian– So I think one way of thinking about it is if you look at all these indicators Prannoy yeah, they are either in negative growth territory or they are barely positive growth territory. Right. And you know what it says is like this is not any slowdown, that’s why it’s India’s great slowdown. See the comparison with 1991-1992 – we have to be careful because you know we don’t have macroeconomic crises at all, in fact, one of the achievements of the government has been to stabilize the macro-economy, you know inflation has come down our reserves are very healthy. We have no external debt problem so we are not going to have a currency crisis. Inflation is relatively low. In 1991, we had this BOP crisis – major, destructive- that’s not the comparison; the comparison is with what happened to the real sector of the economy. You know growth, investment, exports and imports which matters for jobs, which matter for lives, it also matter for how much revenue that the government has to spend on social programs. So the interesting thing is that and maybe we can talk about that later. What you know is the way this slowdown is going to manifest itself or is manifesting itself not in terms of you know – ‘Oh exchange rate collapsed or inflation rate is going up’.

Prannoy Roy: One thing we have done over the last thirty years is this huge foreign exchange reserves. So we don’t need to go rushing to IMF and ask for money.

Arvind Subramanian: Yeah not even close. Very robust macro-economy but on the real sector economy is slowing, jobs, you know, people’s incomes, people’s wages and of course government revenues and what it does to social spending programs.

Prannoy Roy: See, okay these are all index of industrial production and various other forms of symptoms. One of the symptoms you point to, which actually rings very close to everybody’s understanding is how much electricity is being generated. If that’s up, it’s a good sign, if everything is down and that’s up, something’s wrong. But look at what electricity generation growth is happening in India. It is really really serious. It’s a sign of a major crisis, the great slowdown. Electricity, the lowest growth in 30 years. 30 years! Look at that, of course it goes up and down over different cycles but look at the two earlier terrible low points, 2001, 3 %, 2008-09-10 again after the great financial crash, 2.5. And now electricity generation has grown by 1.8?  That really makes you feel, that’s serious.

Arvind Subramanian: You know, this is of course one amongst many indicators and it is an important indicator. You know that the Chinese Prime Minister Li Keqiang, he did an index, he said he also had doubts about Chinese numbers on growth rates so he said, no let’s measure it some other way, and in that, you know, electricity is a very crucial component.