Last month, a research paper by the former chief economic adviser to the finance ministry, Arvind Subramanian, reignited the controversy surrounding India’s GDP calculations. In his paper, Subramanian suggested that India’s growth rate in recent years had been grossly overestimated --- a claim that was quickly criticized by the Prime Minister’s Economic Advisory Council, which suggested that Subramanian’s methodology was unusual and led to misleading conclusions about the growth rate of Asia’s third-largest economy.

However, another study by two economists at the Indian Institute of Management Ahmedabad (IIM-A), Sebastian Morris and Tejshwi Kumari, published earlier this year, arrived at similar conclusions using techniques similar to that of Subramanian.

The duo estimated GDP growth in recent years by using proxy indicators of economic activity such as credit and exports growth to extend the old GDP (2004-05) series. Their analysis suggests that growth rates calculated using the current 2011-12 series may have overestimated the Indian economy’s real growth rate although the growth estimates they arrived at are higher than those presented by Subramanian.

The authors conclude that it is highly unlikely that India has maintained as high a growth rate as 7.2% to 7.5% over the last few years. They argue that actual growth was most likely under 6% and closer to 5-5.5% The authors suggest that one explanation for the overestimation could be that the GDP 2011-12 series calculations do not accurately measure growth during economic slowdowns.

Their analysis suggests that sectors most closely associated with manufacturing, such as trade and transport, contributed most to the overestimation.

Also read: Overestimation in the Growth Rates of National Income in Recent Years? – An Analyses Based on Extending GDP04-05 through Other Indicators of Output

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