More questions on GDP

Next govt must prioritise restoration of faith in official data

Indian official data for both employment and output has increasingly begun to be questioned both internally and internationally. This concern began to be expressed first when the “new series” data for the gross domestic product (GDP) was released in 2015, which revised growth sharply upwards. This growth continued to be relatively robust — according to the government, the fastest among large economies — even as other high-frequency indicators of economic activity appeared to contradict that story. Part of what may have gone wrong has been reported in the Mint newspaper. The crucial difference between the “new series” GDP data and the series being used earlier was that the new data chose to measure output by taking into account data on corporate profits. Theoretically, this is a major advance over using output surveys. It adds into the calculation growth in such corporate activities as marketing, for example. According to the official statisticians of the time, this improvement could be incorporated because of the availability of the MCA21 data — the ministry of corporate affair’s database of registered companies in India. However, it is now known that this database, at least as used in the GDP calculations, has serious flaws. The National Sample Survey Office, between June 2016 and June 2017, examined the MCA21 and found that over a third — 36 per cent — of the companies considered “active firms” could not, in fact, be traced or were incorrectly classified.

Former Chief Statistician of India Pronab Sen has told this newspaper that this problem may not be as great as feared. Even if some of these untraceable companies are shell companies, Dr Sen argues, their profits still reflect actual transactions in the economy and thus should be taken into account when calculating GDP. However, this argument is limited in two ways. First, the method being used to extrapolate overall private corporate output from MCA21 data was in any case controversial. If some of the base being used for extrapolation was of shell or non-existent companies, then theory suggests that they should have been treated differently. Otherwise, there is a very real danger that output growth is being overestimated — precisely the accusation that has been thrown at GDP data since 2015. 

The reliability and accuracy of macro data in India have never before been in question. It is unfortunate that these issues have begun to plague official data in India precisely when questions about jobs and overall growth have become particularly politically sensitive. For investors, too, this is a fraught time. Private investment has not recovered partly because there is still doubt about the future trajectory of the Indian economy — doubts which are underlined and enhanced by unreliable and possibly overstated growth data. In other words, problematic data prints have real effects on the economy. It is vital, therefore, for the government to emerge from a state of denial and address these problems. After the elections, the next government will need to establish an independent inquiry into what may have gone wrong with GDP and employment data, and also work out how it can be depoliticised and made more transparent. After privacy concerns have been addressed through anonymisation or other methods, the MCA21 data should also be made available to the public so that independent academic research can cross-check official claims. After all, no government would like to prove correct the quotation that is often attributed to former British Prime Minister Benjamin Disraeli: “There are three kinds of lies: lies, damned lies, and statistics.”