Offering Hostages To Fortune
India, as the world knows, has some of the best statisticians and the worst national statistics, even as it has some of the best economists and the most misconceived economic policies. India's balance of payments statistics are in a mess with a time lag so long as to make them worthless for policy formulation. The Reserve Bank, which is the main custodian of these statistics, is unpardonably derelict in its responsibilities in compiling statistics on a timely basis. Every time criticism is leveled against its culpability, nationally and internationally, it throws up its hands on the pretext that it is hobbled in its task by labour trouble in its Calcutta office, where the bulk of returns of balance of payments statistics are consolidated.
The record of the relevant ministries of the central government and the Central Statistical Organisation (CSO) in particular in regard to construction of wholesale and consumer price indices is egregious. The measurement of inflation has been virtually impossible with the present indices and despite numerous complaints, no action has been taken to reconstruct them. In the absence of this, a measured inflation in India has become an act of faith for the consumers as well as other players in the economy. The estimates of income distribution and poverty are similarly guesstimates, depending upon their sources, and which of the political parties is in power when the estimates are published.
Whether reforms have helped or hindered the Indian economy is determined on the basis of how much the rate of growth has increased or declined after the initiation of the reform policies. A couple of years ago, the CSO revised the national income estimates, recording a higher rate of growth of Indian economy. These revisions rightly raised the hackles of the economists and the knowledgeable public, suspecting that the national accounts were doctored to reveal the benign face of reforms.
Now something fishy and diabolical seems to be afoot. Being wheedled and hectored by a coterie of some bureaucrats bent upon showing a better fiscal situation or beefing up India's claim for higher quotas in international institutions like the IMF, the CSO is about to use national income statistics, as Viagra to boost up the vigour and strength of the Indian economy, or to help the politicians bolster their macho prowess. The stories are making rounds in Delhi as elsewhere that the CSO has circulated a preliminary paper revising national income statistics drastically upward. It is widely believed that the revised figures will show that Indian national income has been under-estimated by anywhere between 20 to 80 per cent. In that event, India's per capita income will be placed at 700 to 800 in terms of US dollars -- almost double its present level.
The academicians and the public interest groups at large should not allow these revised national income statistics to go unchallenged. There has been too much monkeying around by sycophantic bureaucrats with the statistics in India, be it the consumer price index, exports, industrial output, etc., for serving the political interest of the party in power. The government, before it puts its imprimatur on the new series, should issue a white paper on it for public debate and scrutiny. Only when the methodology is put through a fine comb by the experts in the field should the series be officially issued.
National income estimation is a very sensitive exercise, where a great deal of caution and judgement is required, not to speak of a thorough understanding of the nuances of the statistical methods. This is particularly so when it comes to services. It has been a universal experience that income in the services sector is an unreliable quantity, not least because it involves a subjective judgement and an identification problem. Take for example the case of wages of employees in the government and allied public sector enterprises. National income is supposed to increase automatically with the rise in employment, regardless of whether it contributes to productivity or not. But it is extremely difficult to estimate the productivity of employees in the government unless one believes that all those employed by the government help to enhance its effectiveness in ensuring the economy's progress. But such an assumption breaks down when the government is loaded with an excessive wage bill because of political patronage.
On this count, there is already an upward bias in the Indian national income to the extent that almost 30 to 40 per cent of the labour in government and public enterprises is redundant. In fact, employment in such conditions amounts to "value subtracting" rather than "value adding". The same could be said about the self-employed in the unorganised sector like barbers, domestic servants and a host of others.
If the government, under political compulsion or driven by the bravado of misguided bureaucrats, publishes the new national income series, either to show its fiscal deficit as a ratio of GDP to be low or the size of the economy to be large, to enhance its quota in the IMF, it will lose all its credibility inside and outside the country. It will be the height of irresponsibility to talk up the prosperity of a nation. The only way would be to first subject the new estimates to a searching scrutiny of first class experts like B Minhas, Suresh Tendulkar, Pravin Viasaria, and many others. In due course, the government should consider restructuring the CSO, totally indedpendent of politicians and the bureaucracy.