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Former CEA Arvind Subramanian said there was overestimation of growth between 2011-12 and 2016-17. pradeep gaur/mint
Former CEA Arvind Subramanian said there was overestimation of growth between 2011-12 and 2016-17. pradeep gaur/mint

Subramanian vs Subramanian: No GDP overestimation, says Economic Survey

  • ‘Concerns of a misestimated Indian GDP are unsubstantiated by the data and are thus unfounded’
  • The bone of contention is the accuracy of the government’s estimates for gross domestic product (GDP)

The Economic Survey has turned out to be a statistical battleground between Krishnamurthy Subramanian, the chief economic adviser (CEA) in the finance ministry who authored the critique of the economy for fiscal year 2019-20, and his predecessor Arvind Subramanian, who quit the post in 2018 citing family commitments.

The bone of contention is the accuracy of the government’s estimates for gross domestic product (GDP).

A. Subramanian argued in a paper last June that there was significant overestimation of India’s economic growth between 2011-12 and 2016-17 because of methodology changes.

K. Subramanian counters it with a detailed analysis, which according to the survey, demonstrates “the lack of any concrete evidence in favour of a misestimated Indian GDP". The survey delves into micro-level data, including the creation of new enterprises in the formal sector across 504 districts.

A. Subramanian had argued that the actual annual average GDP growth may have been 4.5% for the five years up to FY17, instead of the official estimate of 7%.

His claim was subsequently questioned by Bibek Debroy, chairman of the Prime Minister’s Economic Advisory Council, in a paper signed by the council, as well as by outside economists, including Arvind Virmani, a former CEA in the finance ministry.

The Economic Survey 2019-20 said that if the evidence of a misestimation is credible and robust, a radical upheaval of methodology should follow, but given the cost of such a massive drill, it is vital to be certain that there is indeed a need to revisit the GDP estimation methodology.

The survey, quoting data on creation of new enterprises, said that the pace of new company creation in the formal sector accelerated significantly faster after 2014, and that far more firms were created in the services sector than in manufacturing, infrastructure or agriculture.

This micro-level evidence squares up fully with the well-known macro fact on the relative importance of the services sector in the Indian economy, it said.

“Concerns of a misestimated Indian GDP are unsubstantiated by the data and are thus unfounded. More broadly, carefully constructed evidence in the Survey…must be taken on board when assessing the quality of Indian data," said the survey.

It, however, conceded that there was a need to invest in ramping up India’s statistical infrastructure, which will be taken up by a panel headed by former chief statistician Pronab Sen.

The base year of the GDP series was revised from 2004-05 to 2011-12 on 30 January 2015.

The Economic Survey looked into the quality of India’s GDP estimation data, considering that any doubt on the country’s growth rate could affect investments at a time the economy is slowing. Such doubts may generate substantial concerns not only among investors, but also among policymakers and it warrants a careful examination, it said.

“Such an examination is important, especially given the slowdown in the GDP growth rates over recent quarters. If investors apply a ‘discount’ to a lower growth rate, even if incorrectly, the same can really affect investor sentiment," said the survey.

According to Rumki Majumdar, economist at Deloitte India, growth has to now come from greater investments and it is important to address the stress in the financial sector to ensure credit growth and liquidity in the economy.

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