Number juggling doesn make the picture rosy

Although certain segments of the economy appear to be performing better in recent months, economic growth in the country is still well below the target.
Even the rebasing of GDP and reassurances given by the outgoing finance minister were not enough to boost economic growth to reach targeted levels. National Accounts Committee revised the GDP growth to 3.6 percent last week, the slippage from budgeted target is 71 bps.
If the rebasing exercise had not been undertaken, the revised estimates would have been still lower, by a massive 113 bps i.e. at 3.2 percent. This is a point of concern, depicting dismal performance of the outgoing government and exhibiting the inaccuracy of economic managers in estimating macroeconomic indicators as important as fiscal accounts.
Rebasing of any macroeconomic fundamental is a routine exercise globally and should not raise red flags but here at home, any sort of rebasing has some controversies attached to it. When the inflation was rebased about two years back, apprehensions arose over the choice of year used as the new base. The timing of that decision was also controversial as it was followed by a downward journey of inflation as measured by the Consumer Price Index.
Now the GDP rebasing has taken place with the base year changed to 2005-6 from 1999-00. The question is why it is not rebased on 2009-10, in harmony with previous such exercises. One plausible explanation to this is that base effect by keeping 2005-06 as base year shows higher growth.
Also, the rebasing methodology has been changed from factor cost to market price. This is in line with international practices and also helps in shaping a better growth picture. Talking to BR Research, a former Principal Economist at the Finance Ministry expressed his dismay over the whole procedure and at the competence of those at the helm of PBS.
He asserted that government ran a mock exercise about 10 months ago with a different rebasing year and methodology. The results of that exercise showed lower growth than the methodology that had been in use previously. He revealed that following the results, that methodology was set aside.
Whatever method is deployed, the bottom line is that GDP is exhibiting sluggish growth. All the three sectors including agriculture, manufacturing and services sectors paced lower than estimated earlier this year. Poor staple crops like wheat and cotton contributed to agri sector revised estimates at 3.4 percent from budgeted 4.1 percent. Rice has similar tale in the offing.
Meanwhile the energy shortage is hammering the momentum of the industrial sectors which is estimated to miss its growth target by 30 bps to 3.5 percent. However, LSM remained slightly above the initial target - a ray of hope for new job entrants.
The toll of above two sectors has to come on the heavy weight sector; services, which missed the target by hefty 90 bps to stand at 3.7 percent. Even the consumerism spree could not spur momentum in wholesale and retail sector which grew by a mere 2.5 percent. The story for rest of the services sub sectors is not very different either.
Hope floats on expectations of a boost in consumer spending following the upcoming elections. But unless the energy woes are resolved, even getting back to the historic growth average of five percent will remain a distant dream.
Even reaching that growth rate will not be the end of this sorry tale; independent estimates show that GDP growth of 8-9 percent is crucial for absorbing the two million youth entering the workforce each year. Given these prospects, the new government will have to move beyond fire fighting, to address long lingering economic hurdles.