Home >Opinion >Views >Opinion | The half done job of defending GDP data

The Economic Advisory Council to the Prime Minister (PMEAC) has issued a point-by-point rebuttal to former chief economic adviser Arvind Subramanian’s research paper that concluded India’s growth was overstated by as much as 2.5 percentage points between 2011-12 and 2016-17. The report punches holes in the methodology adopted and arguments put forth by Subramanian, rejecting his conclusions. His research “would not stand the scrutiny of academic or policy research standards", according to the council, which likens it to “spurious criticism". Take, for instance, Subramanian’s reason for not using tax revenue to gauge economic activity even though it offers actual data rather than estimates. He didn’t use them, he argued, because India’s tax rules underwent major changes. But that defence is odd, indeed, because the only noteworthy change seen by taxation over the past decade was a switch to the goods and services tax, which took place only after the period under scrutiny.

The report also says that Subramanian’s 17 indicators have been “cherry-picked" and mostly reflect manufacturing activity. The services and farm sectors, which contribute 60% and 18% to India’s GDP, respectively, have strangely been left out. It also finds fault with other aspects of Subramanian’s analysis: For example, his comparison of industrial output numbers with the national accounts. The former is a volume-based measure, while the latter measures value addition; so it’s apples versus oranges. In addition, the PMEAC has defended the bump in growth rates under the new GDP data series introduced in 2015, arguing that it’s in line with what countries of the Organisation for Economic Cooperation and Development experienced after they adopted the 2008 recommendations of System of National Accounts. The growth rates of these countries rose by an average 0.7%, not much different from India’s case. The increase, the PMEAC contends, was on account of more data better captured under the new system.

In sum, the PMEAC’s report makes a cogent case against the validity of Subramanian’s assertion. He seems to have conducted just another “smell test", even if backed with the statistical rigour of how various variables are correlated with overall growth both here and overseas across long spans of time. At best, this raises suspicion over the new series, and the alarm on this count had already been raised by economists who pointed out vast discrepancies between stated growth and what’s observed in the economy. That something seems amiss in the official numbers has been amply clear: growth has either been overstated in recent years or understated in earlier times. At this stage, any attempt to conclusively debunk the new GDP data stream would require a direct examination of calculations made by the Central Statistics Office (CSO) to size up our economy. As Mint recently reported, a database it uses for inputs is riddled with dodgy information. It could yet turn out that the contentions of critics are exaggerated, but for this to attain credence among observers, the CSO needs to throw its methodology open to the public. Unless the numbers are validated by independent economists and statisticians, the controversy threatens to rage on. What’s at stake is the trust that Indian institutions have invested decades of diligence to evoke. Perhaps the PMEAC can nudge our official data crunchers to give up denial and come clean.

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