The final word on revised GDP

Panel headed by Pronab Sen has decided that India's growth rate has been correctly estimated by the Central Statistical Office (CSO)

The final word on the controversy over the revised gross domestic product (GDP) is about to be pronounced. An experts committee headed by National Statistical Commission chairman Pronab Sen has decided that India's growth rate has been correctly estimated by the Central Statistical Office (CSO).

This means India grew at 7.6 per cent in 2015-16 and at 7.2 per cent in 2014-15. CSO had arrived at this number after revising the methodology of the way national income is computed and also by changing the base year. The certainty has been conveyed to the Reserve Bank of India, which decides the benchmark rate of interest for the economy in its bimonthly monetary policy based on this.

But, in handing out the hosannas, Sen's draft report could create a headache for the current chief statistician, T C A Anant.

For those who have complained about the Houdini-like rise in growth rate of the Indian GDP for FY15 and FY16, Sen says the estimates for earlier years were repressed by the older series. "There is a new problem in the market. What the new method has done is to open some serious questions about the accuracy of the earlier estimates." In other words, the former chief statistician in his analysis has pointed out that the revision of GDP for earlier years in the light of the new data would be consistently higher as there was consistent repression in the calculation of the industrial rate of growth.

In a detailed chat with Business Standard on Monday, Anant had, however, said "between 2004-05 and 2011-12 on an average, we are going to get a lower amount". His assumption is that the gross value added, or the rate at which the economy added to its stock of goods and services, shows up lower for the change over year - that is 2011-12 under the new method. It should apply for earlier years, too, he estimates. Sen is of the opinion that the far larger numbers of production units including even proprietorships captured by the new method will give a positive thrust to the GDP estimates for earlier years.

His committee is expected to recommend revalidating the GDP data for the economy for a considerable period of past years. In the interview, Anant had said this work was already at an advanced stage. He, too, cites the difficulties in reconciling the new data base offered by the ministry of corporate affairs. "The main issue we are still verifying is the corporate sector estimates (for) which we did not have the same data source as in the past".

Given the intense interest the revision in the Indian GDP series has generated, Sen's approval for the current series and suggestions for the past one will be closely tracked. The ministry of statistics and programme implementation, under which the CSO operates, had last year stoutly defended the way it had measured growth rate of the economy, while several economists and economic agencies differed on the new method. Sen was consequently asked to review the entire dispute.

Anant, too, is aware of this possibility. Speaking to Business Standard on Monday, he has said, "supposing we were to re-compute the past series based on updated data and then say 'we got the growth rates between 2004 and 2011 wrong' (the last year calculated under the old series). Would that feel right?"

The revision of the GDP series that has aligned it to the internationally accepted best practices has almost doubled the number of companies whose data are now captured. For instance, at least 50 per cent of companies that were missing from Annual Survey of Industries (ASI) have now got included.

"It impacts national accounts to a very substantial extent because a lot of estimates that we make depend on this survey. So, if it is flawed, both IIP (index of industrial production) and the WPI (wholesale price index) are going to be flawed. It suggests there might be a whole bunch of non-company units that are also out of the ASI. While as a country, we are producing a lot more", Sen argues.

According to him, one of the clearest of evidence that GDP has been correctly estimated is that by both the old and the new series, the nominal numbers for 2013-14 - the year for which the new series was launched (base year 2011-12) - are almost the same. It is Rs 113.45 lakh crore, which is comparable to the earlier number of Rs 113.55 lakh crore (base year 2004-05).

In the calculation of GDP, the nominal components (at current prices) of the GDP are estimated first. Then, each of the components is deflated by a specific deflator (the whole sale or the consumer price indices). Subsequently, the numbers are added up to estimate the real GDP for the period.

According to Deep Mukherjee, visiting faculty at Indian Institute of Management - Calcutta, who has been writing on the controversy for quite some time, the year-on-year growth of real GDP is relatively a more 'mathematically manipulated' number than the rupee value of nominal GDP. The new series, he agrees, is more accurate for obtaining the value added by the economy.

The Sen committee is also likely to suggest the deflator should be adjusted according to the new data to ensure clarity in the measurements. "The problem of a deflator will become larger and larger as they are based on the old base year of 2004-05."