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Photo: Mint
Photo: Mint

Opinion | Honey, they just shrunk the Indian economy!

Punts by economists about growth scenarios point to the issue of data credibility

Over the last few weeks, analysts of various hues were having a field day with their growth projections for the Indian economy. While earlier the consensus was little or no growth for a covid-19-devastated Indian economy in 2020-21, now the majority favours a massive contraction. While the popular claim is 5%, there are some who argue the contraction could be as bad as 10%.

All these projections are presumably based on some modelling exercise and probably have an underlying science to them, but the big question is whether they are reliable.

This once-in-a-century pandemic, which originated in Wuhan, China, forced countries to impose a lockdown as the first line of defence, which in turn, brought the world economy, including India’s, to its knees.

Simulating a recovery, whether it is a V, W, or flat, in such circumstances is fraught with risks.

Worse, such doomsday predictions, which may or may not turn out to be true, runs the risk of becoming a self-fulfilling prophecy.

Leave alone a year from now, I doubt anyone has an idea about the next quarter of the current fiscal year. What the lockdown has done is effect a hard stop to the Indian economy and, in the process, provided a baseline scenario from where a calibrated unwinding would reveal how economic activity revives—whether it is quick, slow or not at all. It is almost certain that the unlocking will not be uniform.

In other words, the country’s economic revival will be varied and its contours are anybody’s guess. Every week will be a revelation.

This predicament was summed up by finance minister Nirmala Sitharaman while responding to a question on revenue numbers in a recent interview with Mint.

“Even if I tell you the number, how can it give clarity; because end of March is when the lockdown began. Even if I got one rupee in March, will it be the same thing in April; it can’t be," she had said.

Worse, as Mint recently reported, data collection is severely hit by the lockdown. Some data has been withheld as the reporting was found to be insufficient. In fact, the Reserve Bank of India in its latest credit policy statement chose not to project a number, but warned about a contraction in the economy.

Actually, these punts by economists about the likely growth scenarios point to a larger malaise—the one about credibility of official data. Neglect over years has undermined the ability of official data to capture the complexities of a new economy.

Some distortions are simply too alarming and reveal how very often policy decisions are taken on a hunch, as official data is just too unreliable.

In an opinion piece published in Mint two years ago, a former colleague wrote an incisive critique about the flaws in the Index of Industrial Production, the most accepted measure for industrial activity: “The biggest contributor to industrial growth in August 2018 was digestive enzymes and antacids (including PPI drugs). PPI is short for proton pump inhibitors, drugs that reduce gastric acid production. This seems to suggest that India’s industrial development is to a large extent based, both literally and metaphorically, on gas."

The machinations of the Union government with respect to the release of official data over the last one year has further eroded the credibility of the data.

Not only does this play into the hands of compulsive critics, especially among the clutch of Western media and think tanks that believe nothing is right about India, but it also opens the door to interlopers hawking questionable data to acquire credibility.

This is tragic because at one time India under the stewardship of the late P.C. Mahalanobis had put in place one of the most robust statistical systems in the world.

All is not lost, though. A legislation providing statutory authority to the National Statistics Commission has been pending since last year. The Union government should expedite its passage and, thereby, provide legal cover to official data collection.

This should be a fundamental element of the mindset reset Prime Minister Narendra Modi alluded to in his speech while charting out the blueprint for a post-covid India.

Alternatively, punters will continue to rule the roost.

Anil Padmanabhan is managing editor of Mint and writes every week on the intersection of politics and economics.

Comments are welcome at anil.p@livemint.com

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