Demystifying Kashmir's Economic Growth - I
August 19, 2009
By: Arjimand Hussain
The exchange of words between Finance Minster, Abdul Rahim Rather, and Muzaffar Hussain Baig in the Assembly on Tuesday was interesting. Both the gentlemen gave some exciting insights to and analyses of our State finances.
Surely, all statistics are generally like lamp posts: they are good to lean on, but they don’t shed much light. J&K’s finances are no exception. Its analyses and statistical conclusions are normally bizarrely divergent and contradictory.
The first thing that needs to be done is to see our finances from a purely analytical and factual point of view. Partisan view points could be misleading. Remember the ‘zero-deficit’ budgets of the PDP-Congress government? Recall Mr. Rather’s comments then.
The debate on J&K’s Gross State Domestic Product (GSDP) and economic growth needs to go back to the basics – our official statistics. There is a systemic fault, which intrinsically develops a gap between statistical indicators and the real issues on the ground. The fact is that no figures, whether provided by Mr. Baig or Mr. Rather, are close to facts. An objective analysis proves both are partly wrong. And both are partly right.
Mr. Rather said that in 2001-02, our GSDP was Rs 180,39.35 crore on current prices. In 2007, it touched Rs 31,079 crore, marking a growth by 10.89 per cent. While at constant prices this growth was only 5.6 per cent for the same period. This in Mr. Rather’s opinion was unimpressive and happened during the PDP-Congress rule.
He went on to compare the same figures for the period of the NC rule between 1996 and 2001. According to him, the annual growth rate at current prices from 1996-97 to 2001-02 was 16.28 per cent and at constant prices for the same period was around 20.93 per cent. He also said that the Net State Domestic Product rose by 5.54 per cent per annum from 2001-02 compared to 20.74 per cent per annum from 1996-97.
In Mr. Rather’s view, Mr. Baig had wrongly compared GSDP at constant prices in 2003-04 to GSDP at current prices in 2007-08.
But how do the party performances come to play in all this?
Commonly GDP, or in our case the GSDP, is measured by what is called the ‘expenditure method’. Apart from consumption and investment, what adds up to the GSDP in the government spending and exports, minus imports.
On investment, the term ‘gross’ means that depreciation of the capital stock is not included. While as the ‘net’ SDP includes depreciation. In J&K’s system, it is highly unlikely that our official statistics are able to reflect the actual level of depreciation. Our systems are simply not tuned at all to measure depreciation across the economy. So how do we reach to ‘gross’ estimations?
Then there is the issue of our consumption and its relation to imports. Then there are our exports, the vast unregistered economic activities and the question of our purchasing parity. There are many unanswered questions.
(To be continued)
Saturday, January 23, 2010
Demystifying Kashmir's Economic Growth - II
J&K’s GDP puzzle: picking the right threads
By: Arjimand Hussain
Consumption is a critical variable in the measurement of Gross Domestic Product (GDP) or GSDP. In J&K’s case consumption automatically does not mean production, given our high reliance on imports. The relation between our imports and consumption has some finer details which need attention.
It is for sure that our overall consumption is growing, which will naturally show in our GDP. However, a lot of our consumption, both imported and locally produced, is not registered. This consumption flows from all the three segments of our economy - agriculture, industry and services. This component of GDP is massive, and simply out of the statistical systems.
Then is the government expenditure, which during the PDP-Congress rule, was largely fuelled by the PM’s Reconstruction Package and the Kashmir Railway Project. It was sort of a public expenditure bubble, which is not sustainable. Sooner or later, the end of this bubble will reflect on our State’s GDP.
Another problem with our GDP measurement is that it does not take into account the black market, where the money spent is not registered. Most of J&K’s unorganised, and even some organised, economic activities are never registered. Take, for instance, our labour market. It is out of the radar.
Then there is the non-monetary economy, or the barter system, where no money comes into play at all. We don’t have any system of their measurement as well.
Another intrinsic problem with our GSDP accounting is that its growth does not over time take into account the purchasing power of money, which like in every context, varies in different proportion for different goods in J&K as well.
Although the Purchasing Power Parity (PPP) system is often used in comparisons between nation-states, it would require some degee of consideration in J&K’s context as well. There is clearly a degree of difference in purchasing parity – even in the minimum wage – between J&K and rest of India. PPP would take into account the cost of living factor and make suitable adjustments.
Mr. Rather in his Assembly speech said that J&K’s per capita income rose by 3.95 per cent from 2001-02 to 2007-08 (During PDP-Congress rule) against 16.25 per cent per annum between 1996-97 to 2001-02 (during the NC rule).
Any objective analysis would say that this is highly improbable. Between 1996 and 2001 there were hardly any economic activities to warrant such a growth in per capita income. On the contrary, incidentally, there was a major public expenditure boom during 2001-2008.
However, the Finance Minister made an important point when he spoke of J&K’s Balance from Current Revenues (BCR), meaning the difference between revenue receipts and the sum total of all plan grants and non-plan revenue expenditure. That is what shows J&K’s dependence on central grants in very explicit terms.
According to official figures, our BCR in 2001-02 was minus Rs 586 crore, which has gone up to minus Rs 4476 crore in 2007-08. This is preposterous.
Let us don’t forget Simon Kuznets, the inventor of the GDP, who in his very first report to the US Congress in 1934 had cautioned, ‘the welfare of a nation can scarcely be inferred from a measure of national income [or GDP]’.
To be concluded
By: Arjimand Hussain
Consumption is a critical variable in the measurement of Gross Domestic Product (GDP) or GSDP. In J&K’s case consumption automatically does not mean production, given our high reliance on imports. The relation between our imports and consumption has some finer details which need attention.
It is for sure that our overall consumption is growing, which will naturally show in our GDP. However, a lot of our consumption, both imported and locally produced, is not registered. This consumption flows from all the three segments of our economy - agriculture, industry and services. This component of GDP is massive, and simply out of the statistical systems.
Then is the government expenditure, which during the PDP-Congress rule, was largely fuelled by the PM’s Reconstruction Package and the Kashmir Railway Project. It was sort of a public expenditure bubble, which is not sustainable. Sooner or later, the end of this bubble will reflect on our State’s GDP.
Another problem with our GDP measurement is that it does not take into account the black market, where the money spent is not registered. Most of J&K’s unorganised, and even some organised, economic activities are never registered. Take, for instance, our labour market. It is out of the radar.
Then there is the non-monetary economy, or the barter system, where no money comes into play at all. We don’t have any system of their measurement as well.
Another intrinsic problem with our GSDP accounting is that its growth does not over time take into account the purchasing power of money, which like in every context, varies in different proportion for different goods in J&K as well.
Although the Purchasing Power Parity (PPP) system is often used in comparisons between nation-states, it would require some degee of consideration in J&K’s context as well. There is clearly a degree of difference in purchasing parity – even in the minimum wage – between J&K and rest of India. PPP would take into account the cost of living factor and make suitable adjustments.
Mr. Rather in his Assembly speech said that J&K’s per capita income rose by 3.95 per cent from 2001-02 to 2007-08 (During PDP-Congress rule) against 16.25 per cent per annum between 1996-97 to 2001-02 (during the NC rule).
Any objective analysis would say that this is highly improbable. Between 1996 and 2001 there were hardly any economic activities to warrant such a growth in per capita income. On the contrary, incidentally, there was a major public expenditure boom during 2001-2008.
However, the Finance Minister made an important point when he spoke of J&K’s Balance from Current Revenues (BCR), meaning the difference between revenue receipts and the sum total of all plan grants and non-plan revenue expenditure. That is what shows J&K’s dependence on central grants in very explicit terms.
According to official figures, our BCR in 2001-02 was minus Rs 586 crore, which has gone up to minus Rs 4476 crore in 2007-08. This is preposterous.
Let us don’t forget Simon Kuznets, the inventor of the GDP, who in his very first report to the US Congress in 1934 had cautioned, ‘the welfare of a nation can scarcely be inferred from a measure of national income [or GDP]’.
To be concluded
Subscribe to:
Posts (Atom)