‘Most unusual’: PM advisory body stings Arvind Subramanian on GDP rate row

Arvind Subramanian,Indian economy,Chief Economic Adviser

Arvind Subramanian,Indian economy,Chief Economic Adviser

The overall GDP growth for 2017-18, stood at 6.7 per cent, according to the government data.it is in the last quarter of this fiscal that India surpassed the growth of China.

India's gross domestic product product (GDP) growth rate between this period should be about 4.5 per cent instead of the official estimate of close to 7 per cent, he said in a research paper published at Harvard University.

Arvind Subramanian, Narendra Modi government's former Chief Economic Adviser, has deduced that India's economic growth rate has been overestimated by around 2.5 percentage points between 2011-12 and 2016-17 due to a change in methodology for calculating GDP.

In the paper, Subramanian, who quit as the CEA in June last year, used 17 "real" indicators such as vehicle sales, industrial production, credit growth and exports and imports, to check for their correlation with GDP figures during the years 2001 and 2017.

The paper by former CEA comes amidst controversy over the country's economic growth under the new GDP series. Moreover, the service sector, which accounts for more than 50 per cent of GDP, has been inadequately represented.

He said the evidence, based on disaggregated data from India and cross-sectional/panel regressions, is robust. "Lending further credence to the evidence, part of the overestimation can be related to a key methodological change, which affected the measurement of the formal manufacturing sector", he further states.

Subramanian however, has asserted that his findings have key implications.

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The quality and integrity of data need to be improved and India must restore the reputational damage suffered to data generation across the board - from GDP to employment to government accounts - not just by conferring statutory independence on the National Statistical Commission, but also appointing people with stellar technical and personal reputations, he added.

The ministry said the Base Year of the GDP Series was revised from 2004-05 to 2011-12 and released on January 30, 2015 after adaptation of the sources and methods in line with the SNA 2008. Using this, in August past year the growth numbers were recalibrated by the Sudipto Mundle Committee set up by the National Statistical Commission.

The government, however, dumped this calling the numbers experimental and not actual. The Indian economy had posted the GDP growth of 7.1 per cent for the previous financial year 2016-17. "The liquidity squeeze was less severe than suggested by the headlines", he had said in the 2016-17 Economic Survey. "The Indian policy automobile has been navigated with a faulty, possibly broken, speedometer", he says in the report.

In a series of tweets, he provided evidence to his theory.

"Using cross-country regressions to estimate GDP is a most unusual exercise as is the suggestion that any country's GDP that is off the regression line must be questioned". He found that while 16 out of 17 indicators positively correlated with India's economic growth before 2011, after that, from 2011 onwards, 11 out of 17 indicators are negatively correlated with GDP.

"With any Base Revision, as new and more regular data sources become available, it is important to note that a comparison of the old and new series are not amenable to simplistic macro-econometric modelling".

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