Why the cloud of doubt hovers over India’s economic data

Little more than three months ago, a group of 108 economists and social scientists had questioned the credibility of India’s official data. Calling upon their colleagues from across the ideological spectrum to impress upon the government, irrespective of the party in power, “to restore access and integrity to public statistics and re-establish institutional independence and integrity to the statistical organisations”, the economists, from top Indian and foreign institutes, said it was imperative that the agencies associated with collection and dissemination of statistics like the Central Statistical Office (CSO) and the National Sample Survey Organisation (NSSO) are not subject to political interference.

“The national and global reputation of India’s statistical bodies is at stake. More than that, statistical integrity is crucial for generating data that would feed into economic policy-making and that would make for honest and democratic public discourse,” the economists had said in an official statement. However, the then finance minister Arun Jaitley came down strongly on the distinguished economists for alleging political interference in economic data. Terming it a fake campaign against the government, Jaitley had countered the economists saying 70 per cent of them were “compulsive contrarians”, a term he had coined to thrash opponents of the Modi government then.

But doubts over Indian economy growing at around 7 per cent have persisted and questions over the quality of data have been growing since 2015, when the Modi government made major changes in the way GDP is calculated. Over the last few years, several eminent economists, including ex-RBI governor Raghuram Rajan and IMF’s chief economist Gita Gopinath, have flagged the anomalies in the new system. Both Rajan and Gita have expressed doubts over India’s growth rate, saying there are still some issues with the way India calculates it. Three months ago, while expressing reservations over Indian economy growing at 7 per cent when enough jobs were not being created, Rajan went to the extent of suggesting that the current cloud over GDP numbers must be cleared by appointing an impartial body to look at the data.

While Rajan has maintained that a cleanup act is needed to really figure out what India’s true growth rate is, according to a recent report published on NSSO’s website revealed that a data base – MCA-21 – used by the statistics office to calculate GDP is riddled with gaps, thus raising fresh questions about the credibility of India’s economic data. MCA-21 is a key data base that forms the basis of GDP estimation in the new GDP series. The report said that 39 per cent of the companies included in the key data base used to estimate India’s economic activity and GDP growth were closed, untraceable or misclassified. These revelations came amid mounting suspicion among independent economists of the politicisation of India’s statistics agencies, which have historically been seen as credible and non-partisan.

Even before the NSSO report was released, doubts were raised on the new series of GDP estimation, which have often been at variance with other independent sources of data like consumption, production and deflators used to calculate the real GDP. These doubts have now been confirmed with the publication of a research paper by none other than the former chief economic adviser (CEA) to the finance ministry Arvind Subramanian. The former CEA has used long-term time series data on 17 key indicators for India and 71 other countries. His conclusion: India’s GDP growth rates are overestimated by a whopping 2.5 percentage points in the new series between 2011-12 and 2016-17. Thus by Subramanian’s estimate, India’s average annual growth rate during this period was 4.5 percent, far lower than the close to 7 per cent figure officially reported.

Subramanian quit his job last year with close to a year of his tenure remaining to return to the US for “very compelling reasons” and it is fair to raise a question as to why he did not flag his concerns about overestimation of GDP when he was advising the government. To be fair to Subramanian, he did speak about it in bits and pieces in a measured manner but never as forcefully as he has done now. He has defended himself saying that he spotted problems with India’s statistics during his time as the CEA but needed “the time and space afforded by being outside the government”, to actually come to a definitive conclusion. According to Subramanian’s paper, GDP growth has been overestimated for a time period that covers both the Congress-led UPA and the BJP-led NDA governments. This means that India’s claim of being the world’s fastest growing major economy in recent years was wrong.

Over the last few years, several economists and analysts have spoken about large diversions between official statistics and other indicators. The GDP figures have been questioned over the quality of data since 2015. If Subramanian’s figures are true, they imply that India has not been the fastest growing economy over the last few years, though the Modi government never lost an opportunity to showcase India’s GDP figures as his government’s major economic achievement. This however, does not mean that India is growing at an anaemic rate but, as Subramanian’s paper suggests, the “heady narrative of a guns-blazing India must cede to a more realistic one of an economy growing solidly but not spectacularly.” This has several implications as “overestimation” of GDP based on bad data affects policymaking: like for instance, the RBI policy rates which have been aimed at taming inflation when the RBI and the government should have focused on reviving growth.

Questions about GDP figures are not new: they have been asked since the new methodology was unveiled, which the government always brushed away as politically motivated. Subramanian insists that he has identified a technical problem with India’s economic data, not a political one. His paper has three suggestions for what India needs to do: “restore growth as a key policy objective”; “restore the reputational damage suffered to data generation”; and the entire methodology and implementation for GDP estimation must be revisited by an independent task force, comprising both national and international experts. More or less, these suggestions echo similar demands from many economists and experts in recent years. A cloud of suspicion over economic data dents credibility of growth estimation process. No one is suggesting that India dresses up data to make its economy look good. However, a fair and credible review will help quell doubts.

The writer is an independent Mumbai-based senior journalist.

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