Has India been overestimating its GDP growth?

Cornelia Mascio
Giugno 12, 2019

"The estimation of GDP in any economy is a complex exercise where several measures and metrics are evolved to better measure the performance of the economy", it said.

Former chief statistician Pronab Sen said that the paper estimates the difference between the estimate of GDP using volume-based indicators (as Subramanian did), and that estimate calculated using value-based indicators such as the Ministry of Corporate Affairs (MCA) data (as the new methodology does). In January 2015, the Central Statistics Office replaced the country's GDP series (base year 2004-2005) with a new series that used 2011-2012 as a baseline. "India changed its data sources and methodology for estimating real gross domestic product (GDP) for the period since 2011-12. This paper shows that this change has led to a significant overestimation of growth", he said. "But this would also mean that the older series underestimated growth in the years prior to 2011-12", he added, since it was more robustly based on volume indicators.

It may also be seen that the GDP growth projections brought out by various national and worldwide agencies are broadly in line with the estimates released by MOSPI. Has our economy been growing slower than we thought?

In a detailed clarification issued in response to a paper authored by Subramanian in which he stated that India's GDP growth was overestimated by 2.5 percentage points, the government said the country follows accepted global practices for measuring the performance of the economy. "A variety of evidence suggests that the methodology changes introduced for the post-2011 GDP estimates led to an over-estimation of GDP growth".

Mr Subramanian, who returned to academia after being the Chief Economic Adviser between 2014 and 2018, had said the changes did not originate from the politicians and were methodological - "the substantive work was done by technocrats, and largely under the UPA-2 government". Stating that growth over-estimates matter not just for reputational reasons but critically for internal policy making, Subramanian said if the new evidence is right, it would imply that both monetary and fiscal policies over the last years were overly tight from a cyclical perspective.

He said if statistics are potentially misleading about the overall health of the economy, they influence the impetus for reform in serious and perverse ways. The revision in the methodology happened during the first term of the Modi government.

The quality and integrity of data need to be improved and India must restore the reputational damage suffered to data generation across the board - from GDP to employment to government accounts - not just by conferring statutory independence on the National Statistical Commission, but also appointing people with stellar technical and personal reputations, he added.

Subramanian also makes a case for the entire national income accounts estimation to be revisited, besides pursuing an expenditure-based GDP estimation based on GST data.

The former CEA's analysis is based upon 17 key economic indicators for the period 2001-02 to 2017-18 with a higher interdependence with the GDP growth.

The rebuttal comes after Subramanian questioned the change in GDP calculation methods and numbers effected past year. The Indian economy had posted the GDP growth of 7.1 per cent for the previous financial year 2016-17.

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