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New Delhi: The government has set up an expert group to review the manufacturing data used in compiling the new, but controversial, measure of gross domestic product (GDP).

The move comes in the backdrop of continued criticism of the new GDP series, both from within and outside the government.

A three-member committee headed by National Statistical Commission (NSC) chairman Pronab Sen, will first investigate the discrepancies, if any, in the manufacturing sector data used in the series and, subsequently, also review the services sector data. Other members of the group are the former head of the Central Statistics Office (CSO) A.C. Kulshreshtha and NSC member Ramesh Koli.

The new GDP series has generated controversy because the growth in manufacturing recorded in it is at variance with the trends in the economy.

Ashish Kumar, head of CSO, said this is part of the statistical audit that the NSC conducts when a new series is introduced. “The committee will go into both the data used as well as the methodology," he added.

After the CSO changed the way it measures GDP in January, to make it internationally comparable, and sharply revised GDP at market prices to 6.9% from 5% reported under the old series in 2013-14, both policymakers and private economists questioned the data; especially the numbers pertaining to an upbeat manufacturing sector depicted by the data.

For example, the latest data for 2014-15 shows manufacturing rebounding in the fourth quarter (January-March) to 8.4% while the Index of Industrial Production shows 3.6% growth during the same period. CSO attributes this divergence to the wider coverage of manufacturing data from the MCA21 database (of the ministry of corporate affairs) and change in methodology to compute value addition in manufacturing as opposed to measuring volume growth in manufacturing under the earlier series.

D.K. Srivastava, chief policy advisor at consulting firm EY Llc, said the key methodological question that the new committee should look into is the way in which data for the private corporate sector is calculated. “There were two sub-committees on the matter set up by the statistics department. What I learn is that the recommendations of the second committee led to the overestimation of data from the corporate sector. The committee should resolve this discrepancy as the data does not match signals coming from other indicators," he added.

Experts have been concerned that the buoyancy in manufacturing reported by the new GDP series is inconsistent with dismal corporate results, tepid growth in bank credit and flat consumption and investment activities in the economy.

Chief economic adviser Arvind Subramanian said he is still puzzled by the sharp revision in 2013-14 GDP data, while Reserve Bank of India governor Raghuram Rajan signalled his apprehension when he said he did not fully understand the new series GDP data.

According to provisional estimates released by CSO on 29 May, the GDP in 2014-15 grew 7.3%, a tad lower than the advance estimate of 7.4% released in February.

In a joint article in Mint published on 26 May, R. Gopalan and M.C. Singhi, former secretary, and former senior adviser, respectively, at the department of economic affairs, said while the use of new data sets for GDP is necessary and needs encouragement, it is important that there is appropriate validation and credible explanation for the divergence in the new and old series.

“Such divergence in manufacturing, particularly the organized sector that has a strong historical database compiled by MOSPI (ministry of statistics and programme implementation) directly through investigators, needs more transparent clarification. Use of MCA21 dataset as a surrogate explanation is both inadequate and also misleading. Since other sectors do not provide us with this opportunity of comparison, it is all the more necessary that disclosures of data set are made in greater detail," they said.

A former chairman of NSC maintained that the government should have drafted the services of an independent expert to chair the panel. “The NSC must have cleared the new series before it was implemented. So the NSC chairman is party to the new series. There is no point setting up another committee under him," he said, on condition that he remain unnamed.

An IMF team visited India last month to review the new GDP series and assist the statistics department in calculating back series data. However, Sen clarified that this had nothing to do with the controversial developments. As the custodian of the System of National Accounts 2008 (an internationally agreed upon set of recommendations on how to compile measures of economic activity), which India has now adopted, the IMF team had a pending invitation to study its implementation. The team is expected to submit its report by the end of the month, Sen said.

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