Given the recent discrepancy over crucial indicators of the economy, it is essential for India to restore credibility of the statistical system
Has India’s Gross Domestic Product (GDP) been estimated wrongfully? The answer to this question is ‘yes.’ At least as per a recent working paper presented by former Chief Economic Advisor Arvind Subramanian (published by the Center for International Development at Harvard University). According to him, India’s economic growth is overestimated by as much as 250 basis points between 2011 and 2017. With 2011-12 as the base year, the National Account Statistics (NAS) has remained in the news for difference in reports, varying yearly GDP growth rates over earlier series (base year 2004-05), along with inconsistency with other macro-economic parameters like credit growth. Its default routine is to carry this modification periodically in view of changing structural set-ups, comparative price dynamics and other such alterations related to the survey.
However, there are questions ringing in the minds of policymakers: Are the projected GDP growth rates for real (methodologically)? Or do they look inflated due to artificial (technical) revisions, owing to methodological shifts, to deliberately consider inflationary changes as the real changes?
This issue has thoroughly been discussed in the research paper published by Subramanian. The sub-conscious doubtful question is confirmed with soaring GDP growth estimates in FY 2016-17 and 2017-18, despite all the expected upsetting reforms like demonetisation and the Goods and Services Tax (GST). For a developing nation like India, integrity and data quality with accuracy in computation of prime indicators, especially GDP growth rate, and its components, remain crucial to certify consumer confidence and credibility. That India comprises a huge unorganised sector (informal) along with dubious mismatched statistics, further aggravates the level of contention. Nowadays, these alterations are viewed as more political in nature. This needs to be separated from the methodological change. Ultimately, academics may ask: Which database is reliable? The Ministry of Corporate Affairs (MCA) or the Annual Survey of Industries (ASI)?
There are different sets of policy-backed supporters for each one (Debroy, 2019 and Dholakia 2018). Surprisingly, in almost all such reports, GDP figures witness a constant increasing trend, including reports by international institutions like the International Monetary Fund or the World Bank. Subramanian’s report predicts over-estimation of GDP growth rate by not less than 2.5 per cent on an annual basis since FY 2011-12. The actual GDP growth rate must be between 3.5-5.5 per cent. The possible reasons mentioned in the paper are the shift to value-based estimates from the volume, choice of wrong deflators and inappropriate proxies. So, as they say: Is it good to pass former basis of calculation, GDP at factor cost? Is it a kind of impending mini-crisis?
Undoubtedly, the Central Statistics Office (CSO) has done an excellent job by introducing a new series to facilitate national income accounts (NIA, 2015). Still, initially, agencies seem to be hesitant in using new data sources and applying new concepts that have forced repeated revisions later on. The Economic Survey for 2017 hinted towards the imminent crisis due to mis-evaluations (over-estimations) of GDP growth with no direct inference of its constituents like credit to GDP ratio, export volume and investment growth rates. It unfolds complete dichotomy of the GDP growth trend to its components (a very odd phenomenon in macroeconomic terms). It doesn’t talk all without mentioning about the revisions that were proposed in the past for growth rates by the CSO itself. It further questions the reliability without erstwhile careful authentication (EPW, March 2015).
The situation is alarming. If GDP is estimated incorrectly, then what about other key financial and economic ratios that are derived with GDP as the component like a tax to GDP ratio and fiscal ratios? Many incidental concerns like banking system stress, jobless growth and agrarian concerns will need urgent attention. This certainly calls for immediate attention with a prospective action. Independent corroboration and validation by experts is, perhaps, a good idea before any estimates. Stakes for the economy are too big to absorb than just reputational reasons. It was remarked recently that India restructures only in crisis. So, is it really a crisis situation, worthwhile pursuing the new series as is? Is the approach used by CSO (new series) debatable? These answers need more exploration, at a much deeper level.
(The writer is Assistant Professor, Daulat Ram College, University of Delhi)