EAC-PM releases detailed analysis on robustness of India's GDP estimation methodology

The Economic Advisory Council to the Prime Minister (EAC-PM) said on Wednesday that India's GDP estimation methodology is at par with its global standing as a responsible, transparent and well-managed economy.

A detailed note titled 'GDP estimation in India: Perspectives and Facts' rubbished former Chief Economic Adviser Arvind Subramanian's claims that India's average annual growth between 2011-12 and 2016-17 may have been over-estimated by about 2.5 percentage points -- meaning that India actually grew at 4.5 per cent and not 7 per cent, between 2011-12 and 2016-17.

The note said Subramanian cherry-picked a few indicators and performed a rather unconvincing regression analysis to prove his hypothesis that India's GDP was over-estimated post-2011-12.

For instance, Subramanian's paper selectively ignores tax data based on the argument that the period post-2011-12 witnessed major changes in direct and indirect taxes.

The note said Subramanian's analysis ended on March 31, 2017, while the only major tax change (Goods and Services Tax) was introduced on July 1, 2017.

In totality, the note highlights eight clear points with supportive facts and arguments that debunk Subramanian's paper in entirety. The new methodology that uses 2011-12 as the base year includes two major improvements: incorporation of MCA21 database and incorporation of Recommendations of System of National Accounts (SNA) 2008.

"This change was in line with other countries that have changed their methodologies in line with SNA 2008 and revised their respective GDP figures." On average, the real GDP estimates saw an increase of 0.7 per cent among OECD countries.

The note prepared with major contributions from leading economists Bibek Debroy, Rathin Roy, Surjit Bhalla, Charan Singh, and Arvind Virmani "reject Subramanian's methodology, arguments, and conclusions on the basis of academic merit and grasp of Indian realities," according to an official statement.

The note concluded with the point that India's GDP estimation methodology is by no means a perfect exercise and the Ministry of Statistics and Programme Implementation is working on multiple aspects to improve the accuracy of economic data.

"However, the direction and pace of improvement is commendable and as of today India's GDP estimation methodology is at par with its global standing as a responsible, transparent and well-managed economy," said the statement.

"If anything, the weakness of Subramaniam's attempt to suggest that the growth numbers are over-estimated confirms that the estimation process is robust to spurious criticism," said the statement.

"Going forward, Indian National Income Accounting is bound to change for good and an important step in accomplishing that will involve criticism from experts and academics. But the country's interests are not served by imparting sensationalism through the negativity that questions the credibility of the system," added the statement.