Declining subsidy bill helped in 7.9 per cent growth

NEW DELHI: A falling subsidy bill on the back of declining oil prices was the major cause of India’s GDP growing 7.9% in the last quarter of 2015-16, chief statistician TCA Anant said.

“In so far as the growth is concerned, it’s substantially on account of the subsidy compression. That is the major factor in the increase,” Anant told ET a day after the statistics office released the growth figures for FY16.

He explained that the huge jump in the item ‘discrepancies’ had no role in pushing up the value of output. Output growth is estimated independently. It is while breaking up the output into different heads of expenditure — broadly, consumption, investment, exports net of imports — that the discrepancy comes up, mainly on account of lack of clarity on whether to allocate a part of the output to investment or consumption. Why does the buoyant GDP numbers fail provide industry the feel-good that normally accompanies good growth? The answer to that, too, says Anant lie in the GDP numbers, specifically the deflators that measure economy-wide deflation.

For Gross value added, the deflator has been negative, meaning that growth at constant prices has been higher than growth at current prices. In a situation in which many prices fall, companies lack pricing power, stripping corporates of feel-good, but their input prices have fallen more than their output prices have, boosting their value added. Blame falling commodity, primarily oil, prices for both the robust growth and the accompanying impression of sluggishness, in other words.

Total subsidies bill shrank 5.6% in FY16, a fillip they got from falling oil prices. “At the time of advance (estimates) …the subsidy compression has pushed it (growth) up by 0.2 or 0.3%from the implicit growth at that time,” he said and added that consumption is a derived estimate and not a cause that pushed up the growth figure.