GDP growth at 4.7%: Is P Chidambaram the new Yo Yo Honey Singh?

Vivek Kaul 
Yo Yo Honey Singh has an amazing sense of rhythm.
And every time he comes up with a new song, it keeps playing in my head over and over again, like an infinite loop. His latest song “
char botal vodka kaam mera roz ka” is no exception to the rule.
Having said that, one has to also state up front that the lyrics of his songs should never be taken seriously and need to be treated with a pinch of salt. As the tagline of the old Hero Honda advertisement used to be “fill it, shut it, forget it”.
Yo Yo Honey Singh is a tad like that.
But what about the finance minister P Chidambaram? How seriously should he be taken on what he says? Or is he the new Yo Yo Honey Singh?
In a recent interview to ET now, after presenting the interim budget, Chidambaram said “There is no doubt that growth is reviving. We clocked 4.4% in Q1 of the current year, 4.8% in Q2, 5.2% at the minimum in Q3 and Q4 taken together. It shows that growth is coming back at the rate of about 0.4% per quarter.”
What Chidambaram was essentially saying is that the economic growth as measured by the growth in gross domestic product(GDP), in the first quarter of the 2013-2014(i.e. the period between April 1 and June 30, 2013) came in at 4.4%. In the second quarter (i.e. the period between July 1 and September 30, 2013) it came in at 4.8%. He further said that the growth during the next two quarters of the year (i.e. the period between October and December 2013 and January and March 2014) would come in at 5.2%, when taken together. And hence, this shows an economic growth rate of 0.4% per quarter, he remarked. So, by that logic it would take around eight quarters or two years more, more for the economic growth to get back to 8%. Now only if things were as simple as that and everything in life moved in an arithmetic progression.
One needs to be rather ‘brave’ to make predictions on the basis of two data points. But that is what Chidambaram did. And now he has been proven wrong with the GDP growth numbers for the third quarter of 2013-2014(i.e. the period between October 1 and December 31, 2013) that were
released on February 28, 2014.
During the period, the economic growth as measured by the GDP growth came in at 4.7%. This is nowhere near the 5.2% growth that Chidambaram had predicted around two weeks back. If one looks at the data in detail there are many worrying signs.
The manufacturing sector shrunk by 1.9% during the period (GDP at factor cost. At 2004-2005 prices). It had grown by 2.5% during September to December 2012. The sector had grown by 1% during July to September 2013. If India has to create jobs and move people from farms, the manufacturing sector needs to do well.
The agriculture sector grew by 3.6% during the period, after growing by 4.6% during July to September 2013. The agriculture sector contributed around 16.9% to the GDP ( GDP at factor cost. At 2004-2005 prices). But it employs around 45% of the Indian working population (
Employment and Unemployment Survey 2011-12(68th round)). Given this, it is fairly straight forward that if India has to progress jobs need to be created, so that more people can moved out of agriculture, which currently suffers from over-employment.
And what for that to happen, the manufacturing sector needs to do well. In fact, the GDP data clearly shows that the manufacturing sector has barely grown over the last two years.
Other than the manufacturing sector, the mining sector has shrunk by 1.6% during the period. The construction sector, another sector which has the potential to generate ‘huge’ jobs, grew by only 0.6%, after growing by 1%, during September to December 2012. Financing, insurance, real estate and business services did reasonably well and grew by 12.5%, and thus pushed up the overall economic growth by 4.7%.
In fact, things are worrying even when looks at the GDP from the expenditure point of view. The personal final consumption expenditure formed 61.5% of the total expenditure during the period. In September to December 2012, the PFCE had formed around 62.7% of the total expenditure. What this clearly tells us is that PFCE is not rising as fast as other expenditure. In fact, during the period, the PFCE rose by just 2.6% to Rs 9,81,463 crore in comparison to September to December 2012.
Interestingly, during the period September to December 2012, the PFCE had grown by 5.1%. What this clearly tells us is that people are going slow on personal expenditure. The reason for that is high inflation which has led to more and more money being spent on meeting daily expenditure. Hence, people are postponing all other expenditure and that has had an impact on economic growth. One man’s expenditure is another man’s income, after all.
This scenario has been playing out pretty much over the last few years. But P Chidambaram has continued to be optimistic.
In November 2013, he remarked “The second quarter GDP growth rate indicates that the economy may be recovering and is on a growth trajectory again.” In December 2013, he remarked “We are going through a period of stress, but there is ground for optimism. We expect things to become better.” In late December 2013, he remarked “I am confident that the greenshoots that are visible here and there will multiply and that the economy will revive, there will be an upturn in the second half of this year.” In January 2014, he remarked “ I am confident that Indian economy will also get back step by step to the high growth path in three years.” And in February 2014, after presenting the interim budget, he said “we will get back to the high growth path.”
At almost every given opportunity Chidambaram has told us that the economy is recovering, there are green shoots and that the second half of the year will be better than the first half. The GDP grew by 4.4% during April to June 2013 and by 4.8% during July to September 2013. And it grew by 4.7% during October to December 2013. So where is the economic recovery that Chidambaram has been talking about? And where are the green shoots? To me, it appears to be more of the same happening.
Chidambaram has also predicted that “India is likely to achieve an economic growth of between 5-5.5 percent in this fiscal year.” But with the GDP growth being less than 5% during the first three quarters of the year, achieving even 5% growth will be difficult. Let’s not even talk about achieving 5.5% growth.
To conclude, Chidambaram’s statements on economic growth, like the lyrics of Yo Yo Honey Singh’s songs should not be taken seriously at all and be taken with a pinch of salt. While one doesn’t expect a minister of the ruling coalition to be totally negative on the economy, but at least some honesty on what is happening on the economic front, would be nice. Now only, if Chidambaram was listening.
Or, is he, like me, and a lot of other people, busy listening to Yo Yo Honey Singh?
Char botal vodka, kaam mera roz ka…
The article originally appeared on on March 1, 2014

(Vivek Kaul is a writer. He tweets @kaul_vivek)