IMF raises questions over methodology to calculate GDP growth in India

The International Monetary Fund (IMF) has raised questions over some part of the methodology to calculate gross domestic product (GDP) numbers in India. It said large revisions to historical series, the relatively short time span of the revised series, and major discrepancies between GDP by activity and GDP by expenditure complicate analysis.

There was a major controversy over the back series data on the base year of 2011-12. A committee set up by the National Statistical Commission (NSC) came out with its recommendations on the back series, which showed double-digit growth in some years of the UPA government. The recommendations were junked by the government after those were put on the public domain. 

Later, the Ministry of Statistics and Programme Implementation (MoSPI) came out with its own back series data on the base year of 2011-12. It varied hugely from the numbers given by the NSC panel, inviting criticism from many quarters. 

IMF also said there were weaknesses in the deflation method used to derive value added. Deflators are used to convert GDP at current prices to constant prices. 

IMF said the compilation of constant price GDP deviate from the conceptual requirements of the national accounts, in part due to the use of the Wholesale Price Index (WPI) as a deflator for many economic activities.  “The appropriate price to deflate GDP by type of activity is the Producer Price Index (PPI), which is under development,” IMF said. 

IMF OBSERVATIONS

• Major discrepancies between GDP by activity and GDP by expenditure complicate analysis
• There are weaknesses in the deflation method used to derive value added
• The compilation of constant price GDP deviates from the conceptual requirements of the national accounts, in part due to the use of the WPI as a deflator for several activities 

Former chief statistician Pronab Sen said: “We know the weakness of the WPI series to be used as deflator.” Many countries use PPI as deflator as it captures services as well. However, Sen explained that services, particularly those provided by professionals, cannot be so easily priced uniformly even by PPI. 

For instance, medical services provided by a doctor would be priced differently from the ones by another doctor. These discrepancies on prices are there even in advanced countries’ GDP computation, which IMF conveniently glosses over, Sen said. 

Many have raised the issue of the correctness of the methodology of computing GDP on the new base year of 2011-12. For instance, former chief economic advisor Arvind Subramanian had found that the GDP growth rate has been overestimated by around 2.5 percentage points between 2011-12 and 2016-17 due to a change in methodology for calculating GDP.