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BW Businessworld

Slowing Down

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Reading economists' interpretations of the GDP data for the first quarter of 2011-12 (FY12) can be a little confusing. Some think industrial growth is slowing when comparing it with last quarter's performance, while others consider it healthy (at 6.7 per cent) compared to the same quarter last year (5.3 per cent in April-June 2010). Some see agriculture's 3.9 per cent growth as healthy, while others called agriculture the laggard. The only thing everyone seems to agree upon is that growth in services at 10 per cent year-on-year is what is keeping growth higher than 7.5 per cent.

So how can we interpret what the GDP numbers mean? Not with any great degree of clarity, it seems. Here's why. This quarter's growth has been calculated using the new index of industrial production (IIP) series with 2004-05 as the base year. When some analysts compared GDP growth using both the old IIP series (with the base year as 1993-94) with the new one, the wider-than-expected divergence suggested that significant revisions were made to the composition of the IIP.

Unless the GDP data for past years is recalculated using the new series, it would seem a little like comparing apples of the last three years to the oranges of the years before that. But some things we do know.

Construction services have grown just a shade over 1 per cent, consistent with cement and steel consumption from the IIP data. Consumption remains strong, so there will be another few months of high inflation. But we already know that too, don't we, when we go for household shopping.
(This story was published in Businessworld Issue Dated 12-09-2011)