By Mythili Bhusnurmath

Publication of GDP numbers for Q2 FY19 (June-September) is usually a tame affair. Unlike Q1 numbers, which set the tone and tenor of growth in the year ahead, or Q4 numbers that draw a line under the annual growth rate, Q2 GDP numbers—released by the Central Statistical Office (CSO) on November 30 every year—seldom attract much interest.

But November 2018 was not normal in many ways. Apart from elections in three states and hectic campaigning in two others, the closing days saw a political slugfest between the ruling BJP and Congress, following release of ‘back series’ GDP numbers for 2005-06 to 2011-12. The new numbers, showing faster growth (7.4%) in the first four years of the NDA government compared to nine years of UPA rule (6.7%), marked a dramatic reversal of estimates made by an expert committee, headed by noted economist Sudipto Mundle earlier.

In the event, data showing Q2 growth at 7.1% compared to 8.2% in Q1 didn’t help matters much. Part of the reason is that differences regarding methodologies (perennial in GDP measurement) remain. Apart from this, interpretation of GDP data is largely subjective. So, how should one look at the data? As a glass half full or half empty?

This depends not only on how one adjusts for things like ‘base effects’ (the statistical impact of previous data) but also on political leanings. Never mind that growth can never be attributed only to the policies of the incumbent government. If that were so, the US economy’s record high growth rate would be vindication of Donald Trump’s crazy policies.

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In the present instance, for example, Q2 growth is markedly lower than Q1. But once this is discounted for the statistical bump-up of Q1FY19 growth due to lower growth in Q1 FY18, the picture looks distinctly better. Especially if one looks at the first-half growth (7.6%), up from barely 6% in the comparable period last.

Add to that the good performance of the two job-oriented sectors-—manufacturing and construction— and the increase in fixed capital formation (a proxy for investment), and government has reason to believe it is going into the elections on a strong economic wicket.

But that’s not enough. Not only because, unlike the US, where Bill Clinton swept into office with his ‘It’s the Economy, Stupid’ slogan, economic performance has never counted for very much in Indian elections. On the contrary, here elections are fought on a complex mix of factors including religion, caste, ethnicity, language, you name it. Think demonetisation and BJP’s success in the UP polls in 2017.

Nonetheless, the truth is no government can expect to do well at the hustings if the economy is perceived as doing badly at the grassroots level.

But that’s not the only reason why Q2 GDP numbers are likely to be closely scrutinised by GoI. There is another, more important, reason.

For all practical purposes, they are the most comprehensive and up-to date measure of GoI’s economic performance in the run-up to the polls. The next set of GDP numbers, the first advance estimates, are due only in January 2019, a few weeks before the interim Budget is presented on February 1, and not many weeks before the code of conduct for the general elections kicks in. That doesn’t leave much time for sops.

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All eyes on Dec 11

Why is this important? Remember, results of the recent assembly elections are due on December 11. If BJP does well—it is the ruling party in three of the five election states—it is likely to see Q2 GDP numbers as vindication of its economic policies. But if it does not, it is likely to be tempted to go in for populist measures. Remember UPA’s stimulus package on the eve of the 2009 elections— regardless of long-term costs. Fiscal discipline be damned.

After all, GDP growth, in the words of Philipp Lepenies, author of Power of a Single Number: A Political History of GDP, “is not only calculated on behalf of government; it also feeds back into government actions”. In a democracy that action is invariably tempered by what happens at the polls.

Count the Votes

There are already signs of growing farmer unrest. Never mind that GDP data shows agriculture growing at a healthy 4%-plus in the last nine quarters. If BJP receives a drubbing, expect a string of sops, especially for the farm sector.

In itself, macroeconomic data doesn’t count for much. What matters for incumbent govts is whether it gets translated into votes. So, regardless of the official position on Q2 GDP, much will depend on what happens on December 11.

Policy actions in the few months before the code of conduct kicks in will tell us soon enough what GoI really thinks of Q2 data.





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