India's GDP growth overestimated by 2.5 per cent, says former CEA; government rubbishes claim

Former chief economic adviser Arvind Subramanian has deduced in a new research paper that India may not have been the world's fastest growing economy between 2011-12 and 2016-17 as its GDP growth rate was overestimated, a claim the government quickly rubbished saying its estimates were based on accepted procedures and methodologies.

India's gross domestic product (GDP) growth rate between this period should be about 4.5 per cent instead of the official estimate of close to 7 per cent, Narendra Modi government's former CEA said in the research paper, published by the Center for International Development at Harvard University.

"India changed its data sources and methodology for estimating real GDP for the period since 2011-12. This paper shows that this change has led to a significant overestimation of growth," he said. "A variety of evidence suggests that the methodology changes introduced for the post-2011 GDP estimates led to an over-estimation of GDP growth."

Manufacturing is one such sector where the calculations have been largely mismeasured, wrote Subramanian, who quit as the chief economic adviser in August last year before his extended tenure was to end in May 2019.

Stating that his research paper by no means was the final word given the impossibility for researchers to reproduce the detailed methodology underlying the GDP estimates, he said, "That said, the evidence is too broad and robust, the anomalies and puzzles too numerous, the magnitudes of over-estimation too large, and the stakes for the economy and country too high for this evidence not to be debated seriously."

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 apparent puzzle of ongoing and intensifying corporate and financial system stress, weak new project announcements, and persistently low capacity utilisation in manufacturing point towards overestimation of GDP growth, he said.

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.

"At the same time, the entire methodology and implementation for GDP estimation must be revisited by an independent task force, comprising both national and international experts, with impeccable technical credentials and demonstrable stature," he said.

"If statistics are sacred enough to require insulation from political pressures, they are perhaps also too important to be left to the statisticians alone."

Commenting on the paper, the Ministry of Statistics and Programme Implementation said it has from time to time released details explaining the complexities involved in GDP compilation.

India, it said, follows UN-adopted System of National Accounts 2008 (2008 SNA).

"As with any international standard, the data requirements are immense and diverse economies like India take time to evolve the relevant data sources before they can be fully aligned with the SNA requirements. In absence of data, alternate proxy sources or statistical surveys are used to estimate the contribution of various sectors to the GDP/GVA," the statement said.

The ministry said the Base Year of the GDP Series was revised from 2004-05 to 2011-12 and released on January 30, 2015 after adaptation of the sources and methods in line with the SNA 2008.

"With any Base Revision, as new and more regular data sources become available, it is important to note that a comparison of the old and new series are not amenable to simplistic macro-econometric modeling. It may also be seen that the GDP growth projections brought out by various national and international agencies are broadly in line with the estimates released by MOSPI.

"The GDP estimates released by the Ministry are based on accepted procedures, methodologies, and available data and objectively measure the contribution of various sectors in the economy," it added.

The paper by former CEA comes amidst controversy over the country's economic growth under the new GDP series. The revision in the methodology happened during the first term of the Modi government.

The BJP government had in January 2015 updated the base year for GDP calculation to 2011-12, replacing the old series base year of 2004-05. Using this, in August last year the growth numbers were recalibrated by the Sudipto Mundle Committee set up by the National Statistical Commission. This pushed up growth during the Congress-led UPA years based on the so-called production-shift method.

The government, however, dumped this calling the numbers experimental and not actual. It in November 2018 "recalibrated" the economy for the years 2004-05 to 2011-12, pulling down the GDP growth in UPA-era.