India vs the analysts

Just as vigorous debate is underway in China over whether official data is painting a true picture of the economy and in Australia about unpredictable employment numbers, economists monitoring India are perplexed by seemingly conflicting information.

Some can't reconcile India's recent robust growth figures, amid signs of shaky demand. Phillip Capital was blunt: gross domestic product (GDP) figures “defy reality," as other key economic data “points downward in Q3".

" Analyst debate has intensified around India's growth ever since the country revised the way it calculates GDP, bumping up the rate for previous years significantly." 
Alys Francis, Freelance journalist reporting on business and development across South Asia from India

On official data, the world's seventh largest economy with 1.3 billion consumers cemented its lead as the fastest-growing country in the world, clocking 7.3 per cent year-on-year in the last quarter – blazing past China, which posted 6.8 per cent, and the United States, which grew 0.7 per cent in the same three months to December.

However, analyst debate has intensified around India's growth ever since the Central Statistics Office revised the way it calculates GDP last February, bumping up the rate for previous years significantly. India's 4.7 per cent GDP in 2014-13 was recalculated as a vigorous 6.9 per cent.

This was particularly controversial, as India's Chief Economic Advisor Arvind Subramanian pointed out, that was a “crisis year" in India, when capital flowed out and interest rates tightened.

Subramanian was among many economists, government and private sector, who raised doubts about the revised growth numbers, branding them “mystifying". Reserve Bank of India Governor Raghuram Rajan agreed, telling reporters “we find it hard to see the economy as rollicking" that year.

Meanwhile, analysts began sifting through official data for new indicators to better match the perceived activity levels on the ground. This led to the creation of India's own version of the 'Li Keqiang index' following the Chinese premier's reported favourite indicators – in China's case railway cargo volume, electricity consumption and loans disbursed by banks.


India's Central Statistical Office did explain its method, noting it changed the base year from 2004-05 to 2011-12 and expanded coverage of manufacturing. It also switched the calculation from factory costs to the gross value of goods and services production at market prices, including indirect taxes.

Analysts were reportedly invited to a workshop in Delhi so bureaucrats could enlighten them on the finer points of the revisions, which included new ways of valuing livestock by-products, including skin and excrement, and counting households' expenditure on gold as savings, instead of consumption, as they did previously.

The CSO has a hard task ahead of it. When the latest GDP data was released on February 8 with forecasts for 7.6 per cent growth for the fiscal year, analysts began to ask questions.

“Based on the government's advance estimates, it seems to be recovering on an annual basis – to 7.3 per cent in FY16 from 4.9 per cent in FY13, we believe otherwise," Phillip Capital told investors.

Its analysts singled out 12.6 per cent growth in manufacturing – a historical high in the new GDP series – as “unrealistically strong," and reflecting zero impact from severe floods in the industrial hub city Chennai in November.

Ambit Capital, another Mumbai-based brokerage, has similar doubts.

“While there are certain segments of the economy that are holding up, such as IT or e-commerce, large parts of the economy are actually slowing down," Ritika Mankar Mukherjee, analyst and Associate Vice President at Ambit said.

“All our qualitative and quantitative data checks suggest GDP growth decisively decelerated in 2015-16."

Because India's GDP growth isn't supported by other economic data, it's made the robust rate “very controversial," according to Jayshree Sengupta, a senior fellow in the economy and development program at Delhi think tank the Observer Research Foundation.

“They've calculated India as the highest rate of growth in the world but nobody's feeling it, the ground reality's more than a little different," she said.

Mukherjee and Sengupta are among many economists who now look to other indicators to gauge India's economic health. Phillip Capital does the same, citing “reasonable doubts about GDP methodology, data, and deflator."

What indicators are analysts watching that seem to defy India's GDP numbers? Not long after India's GDP formula changed, Ambit developed India's Keqiang Index, which covers electricity demand, passenger car sales, capital goods imports and cargo handled at airports.

Ambit's read on economic momentum? “This indicator confirms our view the Indian economic is undergoing a pronounced economic slowdown," it told clients.

Click image to zoom Tap image to zoom


India's revised GDP broadened coverage of manufacturing. A new database of company balance sheets and informal sectors were added in the mix. The new calculations saw India's manufacturing sector clock solid 5.3 per cent growth in the 12-months to 2014, against a 0.7 per cent contraction in the old GDP series.

Many analysts now gauge India's manufacturing by looking at the Index of Industrial production (IIP), a composite indicator measuring the volume of production in manufacturing, mining and electricity.

India's latest GDP release reported a 12.6 per cent surge in manufacturing in the third quarter. This wasn't reflected in IIP, which recorded more modest 3.9 per cent growth from April to November – when the index contracted to 13-month lows at ‐3.2 per cent, compared to 5.2 per cent a year ago.

The number of industries recording negative growth in November also increased to 14 out of 22, compared to five out of 22 in the previous month.

India's corporate sector had high hopes for growth after Bharatiya Janata Party Prime Minister Narendra Modi swept to power in the 2014 general election, promising to cut red tape and supercharge development. Analysts have kept a close eye on the corporate sector for signs of the “ache din" or good days Modi promised.

But the Reserve Bank of India's recent Financial Stability Report showed the corporate sector did not do well in 2015. The top 500 companies experienced zero revenue growth.

The central bank warned “declining profitability, high leverage and low debt servicing capacity" was an ongoing concern for India's companies, which was also hurting banks.

Earnings being reported for the December quarter are looking equally gloomy, as bad loans rise and global demand sinks. The Bombay Stock Exchange has fallen over 10 per cent so far in 2016.

Sengupta pointed out a raft of other indicators painting a gloomier picture of India's economy, including sliding imports and exports, “dismal" agriculture, and banks listing under bad debts – which prompted investors to dump stocks recently, when the last quarter results revealed mounting non-performing assets and poor earnings.


Growing doubts about data coming from the world's major economies are a serious challenge, not only for analysts. Nevsky Capital cited the “increasing importance of China and India" coupled with “obfuscation and distortion of data" as part of the reason it was shutting down in January.

“Their rise is increasing the global cost of capital because an ever growing share of the most important data they produce is simply not credible," the hedge fund said in a letter to clients. In Nevsky's opinion, both China's and India's GDP growth is “substantially over stated."

Others are more sanguine but no less definite on the central importance of quality data.

Sengupta said it was impossible to determine the credibility of India's revised GDP. “We don't have access to the raw statistics from which they calculate it, unless we do it ourselves, how can I say they're wrong?" she said.

What is clear is the desperate need for growth. India needs to create jobs for one million new young jobseekers each month, roll out electricity to some 300 million, and lift a third of the world's poorest people out of poverty.

Many reforms the government hoped would trigger growth, including a national GST, have stalled in parliament. The United Nations cited these delays as its main reason for downgrading India’s growth forecast for 2016, to 7.5 per cent from 8.2 per cent for 2016.

The agency said India beating China’s growth rate was “due more to a change in the methodology” than acceleration, adding India’s forecast growth was “largely unchanged from that recorded in 2014”.

Ambit expects India’s GDP to grow at 6.8 per cent year-on-year in 2016 and similarly in 2017. The group is advising clients “growth in India is likely to remain under pressure in the immediate term”.

Will India’s economy roar ahead and rival China? In the near term, Sengupta said it rests on the governments’ ability to push “the next stage of reforms” to fire up growth. Long-term she’s optimistic, so long as inequality is kept in check.

“We have everything in India, a huge pool of engineers, scientists, start-ups, money – it’s just the poverty, the inequality which is dragging India down,” Sengupta said.

Alys Francis is a freelance journalist rporting on business and development across South Asia from India’s capital New Delhi.

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

editor's picks

23 Nov 2015

Before doing business in India, you must eat

Nicola Watkinson | Minister Commercial and Senior Trade & Investment Commissioner South Asia, Austrade

In my role as Senior Trade Commissioner, South Asia with Austrade, I'm often asked for tips on working in the region and my answer is always the same: know the place. Get your feet on the ground. Be prepared to come to India. Come a lot.

16 Feb 2017

No, China will not save iron ore

Daniel Hynes | Senior Commodity Strategist, ANZ

Positive sentiment has crept back into iron ore markets amid weaker-than-expected export data from Australia and expectations of Chinese restocking. Our advice is not to get too excited - we still believe China will destock in the post-Lunar New Year period as proposed steel capacity cuts are delayed.

03 Feb 2016

China's 'V' for recovery ahead

Raymond Yeung | Chief Economist Greater China, ANZ

China's economic landscape is changing as traditionally frantic sectors lose pace while others speed into a 'new normal' era. The cyclical decline of property investment continues to drag on overall growth but our forecasts suggest a V-shaped rebound is on the way.