India slips into a pre-Keynesian world

We must improve our statistical systems or be condemned to make policy in the smoky haze of inadequate and politically filtered data

John Maynard Keynes is generally acknowledged as the founder of macroeconomics, with his “The General Theory of Employment, Interest and Money” (1936) seen as the seminal volume for this discipline. Some of the key concepts he deployed in that book include: Aggregate demand (and supply), consumption, investment and their relation to production, employment and economic activity. Stimulating output and jobs were the key policy goals for Keynes and his generation in the midst of the Great Depression of the 1930s. His path-breaking contributions to the theory of macroeconomics stimulated the budding field of national income accounting, led by stalwarts such as Colin Clark, Simon Kuznets and Richard Stone. Theory and data developed in tandem to support the practice of macroeconomic policy, first in the Anglo-Saxon winners of the Second World War and then in the rest of the world (with enormous support from the fledgling United Nations).

I have sometimes wondered how the then industrialised nations of the world conducted economic policy prior to the 1930s, without the analytical framework of macroeconomics and the necessary complement of reliable national income accounts and employment data? Well, in today’s India, we may still have the basic concepts and theories of macroeconomics but, increasingly, we seem to lack reliable estimates of gross domestic product (GDP) and other macro aggregates, including employment and unemployment. It’s hard to make fiscal and monetary policy when you are not sure whether economic growth is slowing or accelerating and what the employment conditions are!

Consider the recent record with GDP growth estimates. All seemed to be well till January 2015, when the shift was made from the earlier 2004-05 base to the current 2011-12 base. Aside from the base year change (which is desirable and normal every 7-8 years), substantial changes were made in methodology and data sources. Together, this spawned various apparent anomalies, including a significant upward revision (and hence acceleration) in the earlier growth estimate for 2013-14, a year which saw a mini balance of payments crisis and a hike in policy interest rates by 300 basis points. Then, contrary to past norms, the Central Statistical Office (CSO) did not revise the pre-2011-12 GDP data in accordance with  the new base for over two years. To fill this void, the Committee on Real Sector Statistics, appointed by the National Statistical Commission (NSC) and chaired by Dr Sudipto Mundle (and with the current chief statistician of India as member secretary), took on this task and published (in July 2018) its estimates for the period 1994-95 to 2011-12 in accordance with the new, 2011-12 base (note: The key sub-committee, chaired by Prof N R Bhanumurthy, had as its member-secretary, the head of the National Accounts Division of CSO). For the politically sensitive UPA years from 2004-5 to 2011-12, these new estimates showed an average upward revision of the 2004-05 base GDP (factor cost) growth rates by about half a percentage point. A controversy erupted. Possibly in response to these back series estimates, the CSO became energised and finally produced its own back series (but only back to 2004-5) in November 2018, resulting in a scaling down of the NSC’s Mundle-Bhanumurthy growth estimates by an average of nearly two per cent points a year. Speak of torturing the data!

Illustration by Binay Saha

Further doubt was cast on the quality of the current, 2011-12 base GDP series a fortnight ago when the earlier GDP growth estimate of 7 per cent for 2016-17 (the year of demonetisation) was revised upward to a whopping 8.2 per cent. This provoked the jest: If you want to sustain 8 per cent plus growth you must demonetise every year!

As for employment data, the National Sample Survey Office (NSSO) completed its survey for 2017-18 (the first since 2011-12), now dubbed the Periodic Labour Force Survey (PLFS), in June 2018. According to press reports, the NSC approved the report in early December but it is yet to be released, a fact which contributed to the recent resignation of two non-official NSC members, including its acting chairman. Parts of the report (or “draft report” as characterised by the vice-chairman of Niti Aayog) were leaked to the press two weeks ago. It shows depressing trends in employment conditions since 2011-12: A tripling of the observed unemployment rate to 6.1 per cent; very sharp increases (more than doubling) in the unemployment rate amongst youth (aged 15-29) to levels ranging from 13.6 per cent for rural females to 27.2 per cent for urban females; and major declines in the labour force participation rates for all segments, down to 23 per cent for females and a dismal 16 per cent for female youth, suggesting a very bleak future for female empowerment. Incidentally, the marked increase in unemployment and large declines in labour force participation rates have also been observed in recent household surveys conducted by the Centre for Monitoring Indian Economy. 

Last week, the CEO of Niti Aayog, (an ex-officio member of the NSC), added to the controversy by publishing in his personal capacity (whatever that is for a government appointee) a two-part article in this paper, critiquing the PLFS “draft report”, stating that it had not been sent to him and he had not been present at the relevant meeting of the NSC, and presenting more positive (though partial) indicators of employment. His substantive criticisms seemed weak, though one would only be able to properly assess this when the full PLFS is placed in the public domain. Such is the state of our knowledge about employment conditions in India and the apparently diminished autonomy of the traditionally independent and professional statistical bodies, CSO and NSSO.

It is an unprecedented and unfortunate situation. We need to urgently review (critically but constructively) the sources and methods underlying the current national income series and undertake the necessary improvements as soon as possible. Concurrently, we have to restore the functional autonomy of the CSO and ensure that it has the requisite quality and quantity of staff and other resources to carry out its onerous responsibilities. A similar agenda is desirable for the NSSO, with special priority to employment/labour force surveys and reports. There is simply no alternative to strengthening and improving our statistical systems and restoring to them the kind of professional autonomy they have traditionally enjoyed in the past. If we don’t, we are condemned to making policy in the smoky haze of inadequate and politically filtered information. 

The writer is Honorary Professor at ICRIER and former Chief Economic Advisor to the Government of India. Views expressed are personal.