Most critics ill-informed about new methodology: Pronab Sen

Interview with Chairman, National Statistical Commission

As critics find fault in the new gross domestic product (GDP) data, National Statistical Commission (NSC) Chairman Pronab Sen, heading a committee to review the methodology of the new series, tells Indivjal Dhasmana much of the criticism is due to the lack of information about the methodology and sourcing of the new data. Edited excerpts:

NSC has appointed a committee under you to review the new GDP data. Has it been done in the wake of criticism of the new series?

No. It is standard practice to do so after the Central Statistics Office (CSO) changes the methodology of estimation. CSO came out with new GDP data after NSC approved the new methodology in this regard. After the data is released, we will review whether the methodology as approved by NSC was adopted by CSO or not. It has nothing to do with the criticism.

Will you also take into account criticism by R Nagaraj, professor at Indira Gandhi Institute of Development Research, that it inflated figures of the non-financial private corporate sector on various parameters, compared to the one given by a sub-committee in its draft report?

No, we will not take cognisance of Nagaraj’s objections. The reason is that he referred to a sub-committee draft report of September 2014. We went through the methodology given in the final report of 2015.

Critics say the new GDP numbers artificially give a feeling of the economy doing quite well, despite ground reality as reflected in the index of industrial production (IIP), credit growth and import data not corroborating this.
Most of them are ill-informed about the new methodology and sourcing of the data. GDP numbers under the new series could be higher even if IIP, credit growth or import figures are down or lackluster. This is because the new numbers shifted from volume-based indicators to value addition and have different sourcing than the earlier series.

For instance, if the value of inputs to a particular output comes down, value addition will increase, though the volume indicator will not show such an increase. In the current context of sliding commodity prices, this might well turn out to be true. This would also result in less working capital, reflected in the low credit growth that many critics of the new GDP data point to. Besides, quality and value of final product might also see a rise. For instance, if an automobile maker manufactures a small car or a sedan, it will be counted as one in IIP data. However, for value addition purposes, there would be a sea change if a sedan is taken into account than a small car.

What about sourcing of the data?

The new data has three different sources: MCA21 (the ministry of corporate affairs’ e-governance initiative), sales tax or value added tax (VAT) data of states and service tax. In the new GDP data, corporate results are mainly taken from MCA21, and only a small portion from IIP. Earlier, it was all IIP or the annual survey of industries. Also, output of retail and wholesale trade was earlier taken from the growth of trade index. Now, it is taken from sales tax or VAT of all the states. Also sale of services was earlier taken from the labour input method. Service tax is now used for this calculation. Which change is pushing up the GDP numbers would be known once review of the methodology is taken.

Many economists and institutions such as the Reserve Bank of India and Asian Development Bank are demanding the back-series GDP data to assess economic performance. Is it possible to come out with such a series, as sourcing is so different now than earlier?

It will be difficult. An International Monetary Fund team will soon come to advise CSO about the back-series data. It would suggest a methodology. However, it would not be binding on CSO to accept this. NSC will assess the methodology and take a call on it.