Impact of divergence between ministries and govt depts on economic data

Departments are most reluctant to factor in changes in the GDP within the same financial year

Is it possible for a government department to have a different estimate of the growth of the economy than those provided by the ministry of statistics? Recently, the Central Electricity Authority has made a projection for national electricity demand based on estimates of GDP growth which has apparently not found favour with the power ministry. A Business Standard report notes the CEA used three GDP estimates, from 6.5 to 8 per cent, to develop its demand model. Projections using a range, as the CEA has done, is a standard practice for regulators across the world. 

A test check of the numbers used by other bodies, including some of the regulators, shows there are variations. The reasons are clear. These numbers have remained unchanged even though the GDP numbers as put out by the ministry of statistics have swung quite a bit in both 2018-19 and in 2019-20. The differences often reveal an inertia by the departments and regulators concerned, according to experts. Ministries often do not change those, as their annual budget cycle is based more on extrapolations of past trends than on recalculating afresh based on the macro numbers, which few will comfortable delving into.  

This has implications. It is true that the Indian economy does not now need the ministries to allocate resources among competing interest groups; allocations are decided mostly through auctions which in turn depend on market-based competition. Still the macro numbers should be important for the government departments to firm up their expenditure plans realistically. For the regulators, keeping abreast of the latest numbers should be important to firm up clear policies to encourage the growth rate of their respective sectors. 

“The standard practice for the departments is to use a mark-up over last year’s expenditure numbers to make their budget”, said an old finance ministry officer. The departments are thus most reluctant to factor in changes in the GDP within the same financial year, the officer added. For instance, none of the departments have issued any revisions to their projections for 2019-20, despite the massive revision in the GDP numbers from initial estimates of about 7 per cent to the final 5 per cent. 

An estimate of the numbers mostly read from the annual reports of the departments and the regulators show the impact of this divergence. The Ministry of New and Renewable Energy for instance has used the earlier 6.1 per cent estimated growth rate of the Indian economy in 2019-20 to make its projections on capacity addition, going into 2020-21. The department of public enterprises is still living with its unaltered numbers for the nominal growth of GDP for 2018-19 as is the pension regulator, Pension Fund Regulatory Development Authority. 

“There is certainly a major lag at any time between the release of GDP data by the ministry of statistics and the pencilling in of the numbers by the other departments. It can easily be more than a year’, said Amitendu Palit, Senior Research Fellow and Research Lead at the Institute of South Asian Studies in the National University of Singapore. Palit who has also worked with the India government at one time added "Matters have not got easier with the reported wide variations in the data in the past one year". 

“Those differences should not be there”, said Devendra Pant, chief economist at India Ratings. He said the differences could become significant when the GDP numbers are transformed into physical units of production by the concerned departments.