* GDP data wrong-foots economists
* Figures out of line with other indicators
* Strong GDP growth raises questions about quality of data
* Modi cites GDP data to attack critics of demonetisation
By Rajesh Kumar Singh
NEW DELHI, March 1 Surprised again by India's
strong official growth statistics, economists are relying
increasingly on high-frequency indicators like bank credit and
rail freight to gauge the real health of Asia's third-largest
For India's cash-reliant economy, Prime Minister Narendra
Modi's decision in November to outlaw old 500 and 1,000 rupee
banknotes came as a big shock.
The decision sucked 86 percent of cash out of circulation,
and everyone from street hawkers to big consumer goods firms
suffered a slump in sales.
With data on commercial vehicle output, rail freight,
service tax receipts and home appliance sales showing slowing
growth or contraction, economic expansion in the quarter to
December was forecast by economists at 6.4 percent.
In fact, it came in at 7 percent, slower than the previous
quarter but enough for India to retain the title of the world's
fastest growing major economy.
"Forecasting India's GDP has become like predicting the
English weather," said one senior economist with an
international ratings agency. "You never know when it will rain,
when it will shine."
The shock was bigger for economists at Mumbai-based
brokerage Ambit Capital, who predicted the economy may even
contract in the quarter after the cash crunch hobbled
Ambit's Ritika Mankar Mukherjee defended her team's view,
which she said was based on an extensive survey of small- and
medium-sized enterprises. She also cited a slowdown in bank
credit growth to a multi-year low of 5 percent.
"India is a heavily bank credit-dependent economy," she
said. "How come you have an acceleration in manufacturing
activity when credit growth is slowing down?"
Ambit is one of several brokerages to devise their own
measures of economic activity, applying methods honed in China,
where GDP figures are suspected to have been "smoothed" for
years by the authorities.
"The message from the GDP numbers doesn't tally with what we
see on the ground," said Sonal Varma, an economist with Nomura
in Singapore. "It does become important to supplement your
analysis with additional information."
POLITICS OF DATA
The official figures were music to the ears of Modi's ruling
Bharatiya Janata Party, as it fights a tough election in the
battleground state of Uttar Pradesh.
Modi had taken flak for his shock monetary therapy from
opposition parties as well as Nobel laureates Amartya Sen and
Paul Krugman. Buoyed by the growth figures, he hit back at Sen,
who teaches economics at Harvard University.
"Hard work is more important than Harvard," he told a
campaign rally in Uttar Pradesh on Wednesday.
The regional election in a state that is home to one in six
Indians is a key mid-term test of Modi's popularity. A strong
showing would boost his chances of winning a second term in
Sandeep Shastri, a political scientist, says the GDP figures
will have little bearing on the election.
"It is not a substantive issue for voters," he said.
Official GDP data has been questioned since a change in
methodology in 2015 transformed India into the world's
fastest-growing major economy. New Delhi defended the overhaul,
citing an improved database of hundreds of thousands of firms.
Data reporting has long been a challenge in an economy where
the informal sector accounts for 40 percent of output and
employs nine in 10 workers.
The federal statistics office carries out periodic surveys
of the grey economy, but it mostly extrapolates data from old
And since India does not have reliable national retail sales
data, statisticians use production figures to estimate consumer
Still, some economists are perplexed by figures showing
growth in consumer spending hitting a four-year high, even as
sales of beverages, home appliances and vehicles fell.
Earnings of consumer goods giants such as Hindustan Unilever
and drug makers like GlaxoSmithKline Consumer
Healthcare also took a hit.
Some data also appear to be contradictory. For example,
services dependent on government spending grew at a faster pace
in the quarter, but overall government spending fell.
"This does not add up," said Varma, the Nomura economist.
(Additional reporting by Zeba Siddiqui in Mumbai; Editing by