To answer this, we need to understand the problems with the old series, and how Mospi has addressed them. Two of the most serious problems were the lack of double deflation and inadequate measurement of informal sector output. Let’s consider how these have been addressed.
In the new GDP series, Mospi seems to have adopted double deflation. This is welcome because, ideally, firms’ nominal value added should be deflated twice: Once for output and once for inputs. In the past, Mospi, unlike G20 countries, deflated the nominal data only once. It did not deflate the value of inputs. This was a problem because changes in input prices, such as large swings in commodity prices, would distort real GDP.
In principle, therefore, the shift to double deflation is a good thing. But its impact depends upon how it is implemented. This is where questions arise, because Mospi has not released enough detail.
For instance, we do not know how widely the double deflation method has been applied. Does it cover all nominal numbers, including those from the services sector, or only the manufacturing sector, or only part of manufacturing? This matters because partial adoption of double deflation could introduce new distortions.
Consider a rise in steel prices. Steel producers will see their margins improve, while steel users will see their margins squeezed. The overall effect on the economy may be neutral. But if double deflation is applied to one group and not the other, the estimated real output will be distorted. If the squeezed margins of steel users are “restored” through double deflation while the higher margins of steel producers are not adjusted downwards, the measured output will be overstated.
The choice of deflator is also critical. Most countries use the Producer Price Index (PPI). But for decades, India’s statistical office did not have the prices that factories charge their wholesalers, or retailers, or data on the thousands of inputs used in production.
This raises the question: What has changed? Mospi’s own documents say that the input PPI is still under trial. If so, how reliable is it? On the output side, services account for most of the Indian economy, yet the new services PPI covers only seven sub-sectors. What about the remaining services for which no PPI exists?
Next, consider the measurement of informal sector output. Mospi says this has been addressed through the new survey of unincorporated enterprises (ASUSE) and the Periodic Labour Force Survey (PLFS). But the quarterly ASUSE does not provide value added. So how was the informal sector GDP estimated?
Finally, let’s step back from the methodological details and look at the big picture painted by the GDP numbers. The problem is that the different parts do not seem to fit together. According to Mospi, import volumes fell by 1 per cent in the April-June quarter. How, then, did the economy grow by 8 per cent and the import-dependent secondary sector, including manufacturing, grow by 10 per cent in real terms?
The data also shows that the value of imports rose by 31 per cent, implying that import prices increased by a staggering 32 per cent. Some of this increase was absorbed by the government, while goods and services tax rates were cut (a year ago) and public capex also increased. But these measures were far too small to offset a shock equivalent to around 1.5 per cent of GDP. Someone still had to pay the higher energy bill. This included industry, restaurants and consumers, some of whom had to buy LPG cylinders on the black market. Yet the data suggests that despite this squeeze on incomes, spending increased sharply.
In summary, despite Mospi’s efforts, it remains difficult to assess whether the problems with the earlier GDP series have been adequately addressed. Part of the problem is transparency. Mospi has released some information, but it is not enough. The press releases and frequently asked questions provide little detail. The committee reports are more detailed, but it is unclear which recommendations were finally implemented. To restore confidence, Mospi should release a comprehensive sources and methods document, as has always been the practice, with detailed answers to these open questions.
Most important of all is to rekindle the spirit of cooperation. Given the erosion of trust in official GDP data over the years, the best way forward for both stakeholders and Mospi is to work together to identify the problems and find solutions.
The writer is associate professor of economics, IGIDR, Mumbai
 "gdp growth, economy")