Macroeconomic data can conceal more than they reveal. It's true of India's gross domestic product (GDP) numbers for the first quarter of the current financial year (2012/13).
GDP, the broadest measure of economic activity, grew 5.5 per cent in the April-June period. This was the first sequential rise in five quarters, but growth in the headline number conceals the deterioration in important sectors. It is likely that the situation will worsen in the remaining three quarters.
"Internals of the data are worse than what the headline says," says Samiran Chakraborty, Regional Head of Research, Standard Chartered Bank.
A close look at the data shows the first quarter's growth is lopsided. Construction was the fastest-growing segment, expanding 10.9 per cent. Typically, construction slows towards the end of the first quarter because of the onset of monsoon rainfall.
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Chakraborty says the delay in monsoon rain this year could have led to a one-off boost in construction. Therefore, the growth may not be sustainable.
GDP data can be a measure of the incomes received or spending by individuals, companies and government. The two measures give different numbers as government subsidy to manufacturers is eliminated when calculating GDP by spending.
The 5.5 per cent GDP growth number is a measure of incomes received and is the most frequently cited figure. When seen through the prism of spending, GDP in the April-June quarter expanded 3.93 per cent. This was a fallout of fixed investment, which creates building blocks of growth, growing only 0.65 per cent in the first quarter, compared with 14.65 per cent a year earlier.
"We are looking at subsidy-led growth," says Pronab Sen, Principal Advisor, Planning Commission. It implies that there could be an adverse impact on economic growth if the government begins to cut subsidies to rein in spending, an important measure in fighting inflation.
Economists also fret about the gradual fall in consumption growth. Private consumption expenditure grew only 3.97 per cent in the first quarter. Chakraborty uses growth rate of trade, hotels, transport and communication as a proxy for consumption.
What worries him is the collapse in this segment's growth to four per cent in the April-June period from 13.8 per cent a year earlier. "We see an overall picture of a directionless economy," says a Deutsche Bank report.
The bank cut its GDP forecast for 2012/13 to six per cent from 6.5 per cent soon after the first quarter numbers were announced.