Subramanian's contention on GDP growth raises brows

The former Chief Economic Adviser to the Central Government, Arvind Subramanian, has claimed, in a recent working paper, that India’s Gross Domestic Product (GDP) growth may have been overestimated by about 2.5 percentage points between 2011-12 and 2016-17. The government has reacted petulantly with a mixture of denial and self righteousness. But the suspicions that the government is causing manipulation of growth figures have not gone away. 

It is not the first time that Arvind Subramanian has expressed misgivings about the growth figures being put out. He had, in an earlier Economic Survey that he authored as Chief Economic Advisor talked about the puzzle of India's miracle growth in GDP of about 7.5 per cent despite miserable growth in investment, growth and credit. Based on comparable examples, he had observed that no other country had grown faster than 5 per cent under similar circumstances.

Now, he has looked at 70 more countries from 2002 to 2016 and estimated the typical relationship between GDP growth and four other indicators viz. the growth of credit, imports, exports and electricity. Having researched thus, he suggests that the relationship holds till 2011 in India but breaks down after that with GDP growth figures around 7 per cent even when other indicators suggest much weaker growth at around 4.5 per cent.

The growth figures put out by the authorities have been suspect for some time. In 2011, Subba Rao, the former Governor of Reserve Bank of India had complained about poor quality of statistics on the basis of which critical decisions are required to be made. In 2013, the Commerce Ministry had reported unusually high figures of export growth only to later on say that there was data entry mistake that resulted in incorrect figures. 

In 2015, there was a switch in methodology from GDP at factor cost to GVA (Gross Value Added), with GDP at market prices now derived from GVA. This showed up higher GDP figures than earlier even as exports growth was sluggish and domestic consumption had taken a beating after demonetisation. Last November, the growth figures for the last decade were revised just to show poorer performance by the earlier government and better performance by the ruling dispensation. In January this year, the 2016-18 growth figures were revised upwards to show better performance by the government during the post demonetisation period. 

The credibility of the government took a severe beating when the chief of NITI Aayog clumsily intervened to defend some unemployment statistics. Even now, the response to Arvind Subramanian's paper has come from the Economic Advisory Committee of the Prime Minister instead of the authorities dealing with the statistics. 

Needless to say, the methodology for data collection, the parameters taken into account and the use of price deflators for value based estimates etc. are highly technical matters on which professional statisticians and economists may have divergent views. The method used by Arvind Subramanian can be open to discussions. There can be healthy debate on various aspects of such data collection and methodologies. However, confidence that the figures put out by the authorities are not motivated is essential for investors and other stake holders. The independence of the government agencies or authorities giving out statistics should also not be open to doubts. The government should do everything necessary to restore the credibility of the official agencies dealing with statistics.

Email : tncrajagopalan@gmail.com