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Former chief economic adviser Arvind Subramanian
Former chief economic adviser Arvind Subramanian

Opinion | It’s time India restores credibility of its data

Arvind Subramanian’s research findings confirm suspicions about the quality of our data. The government must now initiate an independent review to restore confidence in them

Former chief economic adviser Arvind Subramanian’s research findings about India’s rosy gross domestic product (GDP) figures should put to rest whatever little doubt that might have still remained about the need for a thorough and credible review. As it turns out, India’s official GDP data probably overstated growth by as much as 2.5 percentage points between 2011-12 and 2016-17. So, annual growth during the period was about 4.5%, far weaker than the close to 7% figure officially reported, according to Subramanian. It is perhaps fair to question why Subramanian didn’t speak up when he was advising the government. But he has defended himself saying that he did do so internally when his team struggled to string together the loose ends and that it was only after leaving office that he was able to carry out the research that led to his conclusions. If the findings are true, what they imply is that India was not the fastest growing major economy in the world, though Prime Minister Narendra Modi didn’t lose any opportunity to showcase that crown as his government’s achievement. To be fair, Subramanian says the problems relate to periods ruled by both the National Democratic Alliance and the United Progressive Alliance, suggesting that political motivation was not behind India’s overstated growth numbers.

Still, the implications are grave. The Reserve Bank of India (RBI) and the government have all along been focusing on taming inflation when actually it was growth that needed attention. Imagine the economy as a slow-moving car being steered by our policymakers, blinkered in the absence of accurate data. What was needed was to step on the gas through policy stimulus. Instead, policymakers ended up slamming the brakes. The RBI raised rates when it should have lowered them, and the government kept itself occupied with everything other than growth. More disturbingly, the jobs crisis that India is facing might not have been as bad if the need for stimulus was realized in time. Perhaps it was not a result of economic circumstances alone. Faulty policies may have also contributed to it.

Questions over the quality of Indian data have been growing since 2015, when the Modi government made major changes in the way it calculates GDP. Eminent economists, including Raghuram Rajan and Gita Gopinath, have flagged the anomalies in the new system. Concerns grew when Mint last month reported that as much as 38% of the companies that were part of a database used in the new GDP calculations could not be traced or were wrongly classified. Subramanian was a key figure in the government, advising none less than the finance minister. Now that he too has raised a red flag, the government must listen. It must give up its resistance and initiate a review by a committee of independent experts—both domestic and international—to look into the processes being followed and the sources being used in gathering data. The methods employed to measure growth must also be examined. Such an exercise might have been politically damaging before the elections. However, it’s hard to understand what prevents it now, given that Modi has romped back to power and does not need to face elections for another five years. If anything, a review would clear the doubts about his intentions. More importantly, the credibility of Indian data is at stake. If the air is not cleared soon, then it won’t be long before India is counted among the countries that dress up data to make their economies look good. A credible review is a must. Nothing less would do.

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