Some food for thought
"Rapine, avarice, expense. This is idolatry. And these we
adore."
—William Wordsworth (English Poet, 1770-1850)
Word for the day
Esprit de l’escalier (n)
A perfect comeback or witty remark that one frustratingly comes
up with only when the moment for doing so has passed
First thought this morning
Legendary Bill Gates in a tweet yesterday said, "I’m always
amazed by the disconnect between what we see in the news and the reality of the
world around us. As my late friend Hans Rosling would say, we must fight the
fear instinct that distorts our perspective."
Unfortunately, this phenomenon is universal, not limited to US
only.
In our case, while the media focuses on totally frivolous
issues. Life threatening diseases like cancer, diabetes, obesity, have become
epidemics. Water scarcity is at alarming level in many parts of the country. We
are staring at yet another subpar monsoon. A new education policy is in the
making that will impact the life of millions of children. But no one is
debating these issues.
Instead they are making brouhaha over the recent Pakistan TV
advertisement using IAF pilot Abhinandan as a prop is a point in case.
For records, I found the advertisement creative, controlled,
funny and highly ambitious. Ideally, the creative minds on our side should have
responded with a funnier and more impactful campaign. Instead our hysterical
media celebrities and Twitter warriors took the mantle upon themselves and
turned this into a ugly battle of national pride and popular sentiments.
Keep it simple
Former CEA Arvind Subramanian has resuscitated the debate over
accuracy and authenticity of the national account data released by CSO. In
recent past many economists and other experts have raised doubts over the
methods and processes used by CSO in estimating and forecasting national income
data. (You can read the paper submitted by Mr. Subramanian here)
The primary argument is that post change in the methodology in
2012, CSO might have been overestimating the GDP growth. This overestimation
may have led to many policy distortions, especially tighter monetary policy
that checked the demand and actually impaired the growth.
As per the paper, the high GDP growth numbers were not
corroborated by a number of independent data like Cement & Steel sales, 2W
sales, growth in exports and imports, Railway freight, tractor sales, IIP etc.
during FY13 to FY18 period. While these numbers had shown a positive
correlation with GDP growth during FY01 to FY12.
The paper cautions that an overestimation of GDP, essentially
means distortion of many key statistics that are calculated using estimated
nominal GDP as denominator.
For example, If nominal GDP growth is over-estimated it would
mean that India’s tax performance (including the new GST) has been more
impressive than currently believed. On the other hand, it would also mean that
many important fiscal ratios (deficit/GDP and debt/GDP) are worse than
currently believed, because the denominator in these ratios is nominal GDP,
which could be lower than currently measured. It would also mean that the
decline in financial savings that has caused much alarm is smaller than feared.
Without questioning the appropriateness of, or motive behind,
the study in question, I feel that it is like someone seeking divorce from
his/her spouse after 50yrs of happy and healthy marriage just because the
spouse had an affair during college days. We all are ware that CSO methodology
and processes may be inadequate. But that has been the case all along.
Moreover, Mr. Subramanian, while at the helm as CEA, not only
approved the same statistics, but also actively marketed it to the unsuspecting
citizens and the government it was duty bound to give right advice.
Regardless, of the CSO methodology, processes and GDP growth
numbers released by it, and totally ignoring the league table of GDP growth
data for various countries especially China, I suggest the following:
(a) Interest rates
should purely be a function of demand and supply for credit. To smooth out the
bubbles or fill in the gaps, the monetary regulator may temporarily manage the
overall or sectoral supply of credit through various means, but it must leave
the price of credit to be determined solely by market forces.
(b) Fiscal deficit
should be measured against fiscal revenue only. All capital expenditure that
results in creation of productive assets should be excluded from these
calculations.
(c) CSO data should
be one of many guides to the policy making, and not the exclusive policy
determinant.
(d) Production (Value
addition) GDP and expenditure GDP should be calculated separately by two independent
agencies, so that any material mismatch is highlighted immediately.
(e) Qualitative
data, like number of cancer patients, school drop outs, child mortality, air
quality, student teacher ratio, patient doctor ratio, citizen police ratio,
crime rate etc should also be given reasonable importance in data dissemination
by government agencies.
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