Betting on growth

Three years ago, this column had suggested, only half-facetiously, that someone should open a book on growth projections by economists and think tanks.

There are so many of them, after all, each only slightly different from the other, that betting could become exciting and, perhaps, even profitable. Already this year, several growth projections are available for 2004-05.

Someone asked me if a similar book could not be opened for the accuracy of growth numbers for the year just gone by, with the book remaining open until, say, July of the following year. Thus, the final-final growth number betting on, say 2000, would remain open till July 2001, and so on.

Obviously, you could do some derivative betting as well, on things like the fiscal deficit, revenue collections, expenditure, actual food productions and so on. In time, said my interlocutor, it could grow not just into a great national pastime; it could even serve to make Indian numbers less dodgy.

But economists, while generally positive about the virtues of risk, are notoriously averse to personal risk. So, like the rest of my brilliant ideas, this one also came to nothing.

But another opportunity has presented itself to bring the idea to fruition. The hugely respected Centre for Development Economics at the Delhi School of Economics (CDE-DSE) has come out with an analysis* that says growth in 2003-94 will be no more than 7.6 per cent as against 8.1 per cent as per CSO Advance Estimates.

"In part, this is because of an overstatement of the decline in agricultural GDP due to the drought in 2002-03 and the consequent understatement of the base for the CSO growth estimates for 2003-04."

If growth in 2003-04 was less than 8 per cent, what will it be in 2004-05? The answer depends on how sound the analysis by the CDE-DSE team. They have never been known to be wrong.

The analysis also makes some projections. "With normal monsoons, GDP growth is forecast to be 6.6 per cent in 2004-05 and 6.8 in 2005-06. Varying the assumptions about rainfall conditions in 2004-05 and 2005-06 yield GDP growth rates of between 5.6 and 6.9 per cent for 2004-05 and between 5.7 and 7.7 per cent for 2005-06."

Exports, says the study, will grow at about 15 per cent in dollar terms in both 2004-05 and 2005-06. Import growth will be slower at about 20 per cent in 2004-05 and 2005-06, compared to the 25 per cent growth in 2003-04. The trade deficit will double to $ 32.2 billion in 2005-06. The current account surplus will decline to $ 0.2 billion in 2005-06 from $ 4.9 billion in 2003-04.

"Price inflation based on WPI [whole-sale price index] is forecast to stay close to 5 per cent in 2004-05 and 2005-06 and that based on CPI to stay well below 4 per cent." But inflation will remain at 5 per cent both in 2004-05 and in 2005-06. Consumer price inflation is forecast to be well below 4 per cent in both years.

The team expects the "the current trend towards appreciation of the rupee vis-à-vis the US dollar to be arrested and possibly reversed" and assumes the rupee-dollar rate to be about 45.00 for 2005-06.

Well, we will see what we will see, won't we? In the meantime, here is a query I have been making repeatedly to all economists who make these projections -- are you sure official data is kosher?

I don't think it is. Furthermore, I think it is getting worse, so the law of large numbers also doesn't work.

Any bets, anyone?

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