Wednesday, March 20, 2013

Gujarat's growth rate in 2012-13 likely to be less than six per cent, one of the worst in recent years

By Rajiv Shah 
This piece of news should make power policy makers of the Gujarat government – wanting to put Gujarat at 11.2 per cent rate of growth per year for five consecutive years, 2012-17 – set out to think if they were not hyping out their claims a little too high. Latest information available from authoritative sources has suggested that Gujarat would be back to single digit growth for the second consecutive year, in 2012-13, which is quite unprecedented in the last more than a decade. In fact, available figures suggest, that the actual rate of growth of Gujarat economy is all set to be the worst since 2006-07. Yet, interestingly, none in the state corridors of power is ready to admit it, at least through documents, about the poor performance of the economy. Even then, the budget books, which seek to hide details of the state of the economy of Gujarat, have quietly admitted things policy makers would not like to make public. 
Even then, a recently released a budget book, “Statements under the Gujarat Fiscal Responsibility Act, 2005”, has sought to paint a very rosy picture for the state’s growth rate, though refusing to confront reality. It says, “The state has emerged as the growth engine of India and its pace of economic growth continues to be higher than the national average. The State economy at current prices has recorded an annualized growth rate of 16.65% for the last eight years (2004-05 to 2012-13), one of the highest in the country. The near stagnant global growth scenario with the effect of sovereign debt crisis of European countries as well as high level of domestic inflation and high interest rates, have seriously affected the Indian economy, which is witnessing a sharp decline in growth in FY 2012-13. Despite these challenges the state’s economy is expected to grow at 13.98 % over the last year.”
What the budget book does not say is, the rate of growth of gross state domestic product (GSDP), 13.98 per cent, does not preclude inflationary pressure. If economists are to be believed, GSDP is never calculated at the current prices, which includes inflation, but at constant prices, by deducting what is called “deflator rate”, in order to arrive at the actual rate of growth, at constant prices. In fact, Gujarat’s policy makers have nothing to boast about when talk about the rate of growth vis-à-vis the national average. Government of India documents show that in 2012-13, India’s rate of growth, at current prices (which includes inflation) would be 13.3 per cent, which is very near that of Gujarat’s. However, once deflator is applied, at 2004-05 prices, to arrive at constant prices, the actual rate comes to a five per cent!
While no authentic deflator separately for Gujarat is available for 2012-13, a senior consultant in Ahmedabad estimates, talking with this correspondent, that the actual GSDP growth rate in Gujarat (at 2004-05 prices) would be between six and eight per cent. If the national deflator is applied to Gujarat, the state’s GSDP rate of growth would be 13.98 per cent minus 8.3 per cent – or 5.68 per cent at constant prices, to be exact. There is certainly nothing to boast about this, too, as this would be very near to the national average of five per cent. The consultant quotes some sources, still to be confirmed, to say that Gujarat’s deflator for 2012-13 would be 6.92 per cent. If this is true, then the state’s real growth, at constant prices, would be 7.06 per cent, again nothing to boast about at a time when the state’s policy makers have declaring from rooftops that it would double digit plus for five years!
Whether it is 5.68 per cent or 7.06 per cent, it is a fact that this would be one of the lowest rates of growth for since 2006-07. Year-wise figures show this quite clearly – in 2006-07, Gujarat’s GSDP growth (at constant 2004-05 prices) was 8.4 per cent, which went up to 11.0 per cent in 2007-08. The next year, in 2008-09, it plummeted to 6.8 per cent, and then for two consecutive years it was in double digit – 11.2 per cent in 2009-10 and 10.0 per cent in in 2010-11. In 2011-12, figures for which have been provided by another Gujarat government budget book, “Socio-Economic Review: Gujarat State”, it would be 8.5 per cent. Worse, out of seven years, in four, Gujarat would be witnessing single digit growth, once again belying the hope of coming anywhere near 11.2 per cent annual rate of growth.

1. Gujarat's GSDP rate of growth at current prices: 
2004-05                     -
2005-06                 20.34
2006-07                 15.92
2007-08                 16.07
2008-09                 11.73
2009-10                 17.22
2010-11                 22.99
2011-12                 15.33
2012-13                 13.98 (Advanced Estimates)

2. Gujarat's actual GSDP rate of growth at constant 2004-05 prices: 
2004-05                 -
2006-07                 8.4
2007-08               11.0
2008-09                 6.8
2009-10               11.2
2010-11               10.0
2011-12                 8.5
2012-13                 5.7 (Advanced Estimates)

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