ASSOCHAM

Concept Paper

“New Indicators to check economic uncertainties”

November 2008

Prepared by:
Gaurav Sharma
Assocham Research Bureau
Executive Summary

As the economic growth goes in the reverse gear amid rising economic uncertainties globally, the
need for India to equip itself to deal with the turbulent economic environment has grown
significantly. New Economic indicators are required to keep a check on the sectors which could
have severe implications on the real sector.

ASSOCHAM suggests seven new indicators to keep the pace of economic growth intact. These
indicators cover an array of economic activities relating to Employment, Construction, Real
estate, Non-manufacturing sector, External prices and Consumer Confidence that could enable
the government to take control of the unforeseen crisis situation, both on micro and macro-
economic level, well within time to avert any downswing in economic cycle.

LIST OF PROPOSED INDICATORS: ASSOCHAM

S.No. INDICATOR

1 Non-Manufacturing Index

2 Consumer Confidence Index

3 Quarterly Unemployment rate

4 Housing Market Index

5 Index of Construction Spending

6 Business Inventories Survey

7 Index of Import and Export Prices

Introduction

With rising global economic uncertainties, India warrants new indicators to tame possible
economic negativities arising out of the worst financial crisis since the great depression. The
economy needs to be well monitored to take timely policy actions to avert downswing in the
economic cycle.

At present, the economic indicators that we have, presents a macro level view of the sectors at
the core of the economy like Industrial productivity indicators, Monetary and Price indicators,
Export-Import indicators, Fiscal indicators etc. Assocham Research Bureau with an analysis of
the present global economic situation has suggested seven indicators that are quintessential to
monitor the economy, at micro as well as macro level, to ensure proactive action by the policy-
makers to come out with timely corrective measures to meet the unforeseen crisis situation.
Assocham proposed seven new indicators for better economic picture

Feeling the heat of global financial crisis, Government should come up with a set of new indicators that
could enable the policy makers to take timely action amid rising economic uncertainties, stated an
Assocham Eco Pulse (AEP) study.

Assocham has suggested a set of seven new indicators that could serve as an effective tool in the
armory of policy-makers to tame the economic negativities well within time, leading to deal with
unforeseen economic downturns more effectively and efficiently.

“It is in the prime interest of the economy to have a close monitor on the activities across various
dimensions including: Employment, Construction, Real Estate, Non-Manufacturing sector,
External prices and Consumer Confidence” said Assocham’s spokesperson.

Although these indicators can help analyze the economic picture better, this would not be
feasible to release figures on these indicators solely by the government. The authorities should
take the services of specialized independent organizations to assist in releasing these figures
publicly at regular intervals. Transparency on front of these indicators would present a case of
increased consumer and producer confidence in the economy.

The list of seven indicators highlighted by ASSOCHAM includes an array of significant economic
activities that could enable the government to take control of the unforeseen crisis situation,
both on micro and macro-economic level, well within time to avert any downswing in economic
cycle.
 LIST OF PROPOSED INDICATORS: ASSOCHAM

S.No. INDICATOR DESCRIPTION

An indicator of the overall economic
conditions for the non-manufacturing
Non-Manufacturing sector. It may consist of equally weighted
1
Index indices relating to the service sector:
business activity, new orders, and
employment.
A survey of consumer attitudes on present
Consumer Confidence
2 economic conditions and expectation of
Index
future conditions.
To show the quarterly employment
Quarterly scenario. An increasing (decreasing) trend
3
unemployment rate would suggest a deteriorating (improving)
labor market.
Weighted average of separate diffusion
indices: present sales of new homes, sale
4 Housing Market Index of new homes expected in the next
quarter, and traffic of prospective buyers
in new homes.
To be derived from the rupee value of new
construction activity on residential, non-
Index of Construction
5 residential, and public projects. Data
Spending
should be available in both, nominal and
real (inflation-adjusted) terms.
To show a monthly growth rate (positive
Business Inventories or negative) in rupee amount of
6
Survey inventories held by surveyed
manufacturers, wholesalers, and retailers.
To be compiled for the prices of goods
that are bought in India but produced
Index of Import and abroad and the prices of goods sold
7
Export Prices abroad but produced domestically. These
prices will indicate inflationary trends in
internationally traded products.
Non-Manufacturing Index: With manufacturing data released monthly on productivity
(Index of Industrial Production, with a share of 79.3 per cent) and weekly on price (Wholesale
Price Index, with a share of 63.8 per cent), there is a need to look upon the Non-manufacturing
sector with parameters relating to business activity, new orders, and employment. An Index for
the service sector (accounting for more than 55 per cent of the GDP) would ensure the growth
target is intact for the years to come.

Consumer Confidence: Atleast 8-10 thousand consumers across the country should be
surveyed each month. A survey of consumer attitudes on present economic conditions and
expectations of future conditions would give a clearer picture on the booming or sinking
economic confidence in the country.

Quarterly unemployment rate: An increasing (decreasing) trend in the indicator would

suggest a deteriorating (improving) labor market. Quarterly unemployment rate could serve as a
good measure to gauge the strength of the job market having a direct link with the strength of
the economy. Every employment opportunity comes with an income that gives a household
spending power. Spending greases the wheels of the economy and keeps it growing, so a
stronger job market generates a healthier economy.

Housing Market Index: This would provide a gauge of not only the demand for housing, but
the economic momentum. With the burst in the US housing bubble seeping its way into the
financial system; having severe economic implications, India could insulate itself from such a
scenario with a Housing market index keeping a watch and hence a check on Housing prices.

Construction Spending: A portion of construction spending is related to government

projects in the infrastructure sector such as building Roads and Highways, Educational
Institutions, etc. Construction activity by the corporate sector would envisage the pace of future
economic activities.
Business Inventories Survey: The level of inventories in relation to sales is an important
indicator of the near-term direction of production activity. It would enable the policy makers to
keep a bird’s eye view on the consumer and industrial demand in the economy.

Index of Import and Export Prices: These prices indicate inflationary trends in
internationally traded products. It would help the policy makers to keep a track on relative price
trends externally to contend with the imported inflation phenomenon in a better and timely
manner.

With rising concerns over the present and future growth trajectory of the Indian economy
notably evident from a steep decline in the IMF growth projections for India, the policy-makers
should take note of the situation and devise these indicators to tame economic negativities
arising out of turbulent global financial crisis.

It is concerning to note that the IMF’s projected Indian GDP growth rate for 2009 has been
revised by a magnitude of 1.7 per cent.

IMF’s Projections for INDIA

GDP growth Nov 2008 Difference from
for July 2008
2008 7.8 -0.2
2009 6.3 -1.7

Given the limitations on front of: Unorganized nature of markets, Regulatory issues, Possible
scope of delegation to agencies to assist in arriving numbers on these indicators, they will help
the policy-makers to take a firm stand, well in advance, to counteract the unforeseen economic
threats in the long run.