Polity and Governance

Controversy regarding GDP Growth Estimates

Introduction
•The former Chief Economic Adviser to India, Arvind Subramanian, has made a sensational claim that India's GDP growth rate may have been over-stated.
•While India's GDP growth-rate hovered at 7 percent between financial years 2011-12 through 2016-17, Subramanian states that actual growth rate could have been in the range of 3.5 to 5.5 percent.
•He made this startling claim in a research paper published by Harvard University titled, ‘India’s GDP Mis-estimation: Likelihood, Magnitudes, Mechanisms, and Implications’. 
 
New Mythology of GDP calculation
•The estimation of GDP in any economy is a complex exercise where several measures and metrics are evolved to better measure the performance of the economy.
•For the purpose of global standardization and comparability, countries follow the System of National Accounts (SNA) evolved in the UN after elaborate consultation.
•The new methodology of GDP calculation uses 2011-12 as the base year includes two major improvements,
•Incorporation of MCA21 database, and
•Incorporation of the Recommendations of System of National Accounts (SNA), 2008.
•This change was in line with other countries that have changed their methodologies in line with SNA 2008 and revised their respective GDP figures.  
 
Justification for using SNA 2008  
•The System of National Accounts 2008 (2008 SNA) is the latest version of the international statistical standard for the national accounts, adopted by the United Nations Statistical Commission (UNSC) in 2009 and is an update of the earlier 1993 SNA.
•The Inter-Secretariat Working Group on National Accounts (ISWGNA) was mandated to develop the 2008 SNA through intense discussions and consultation with member countries.
•India also participated in the deliberations of the Advisory Expert Group.
•In its adoption of the 2008 SNA the UNSC encouraged Member States, regional and sub-regional organizations to implement its recommendations and use it for the national and international reporting of national accounts statistics based on the available data sources.  
 
Justification for changing base year
•With any Base Revision, as new and more regular data sources become available.
•A comparison of the old and new series are not amenable to simplistic macro-econometric modelling.
 
Government’s view
•The Economic Advisory Council to the Prime Minister on June 19, 2019 released a detailed note titled ‘GDP estimation in India- Perspectives and Facts’.
•The note provides a clear rationale for India’s switch to an improved GDP estimation methodology in January 2015.
•It reject Dr. Subramanian’s methodology, arguments and conclusions on the basis of academic merit and grasp of Indian realities.
•In totality, the note highlights eight clear points with supportive facts and arguments that debunk Dr. Subramanian’s paper in entirety.
 
Evidences to reject the claim of Dr Subramanian
•Dr. Subramanian has cherry-picked a few indicators and performed a rather unconvincing regression analysis to prove his hypothesis that India’s GDP was over-estimated post 2011-12.
•Dr. Subramanian’s paper selectively ignores tax data based on the argument that the period post 2011-12 witnessed “major changes in direct and indirect taxes”.
•Dr. Subramanian’s analysis ends on 31st March 2017, while the only major tax change (GST) was introduced on 1st July 2017.
 
Government’s view
•India’s GDP estimation methodology is by no means a perfect exercise and the Ministry of Statistics and Program Implementation is working on multiple aspects to improve the accuracy of economic data.
•However, the direction and pace of improvement is commendable and as of today India’s GDP estimation methodology is at par with its global standing as a responsible, transparent and well-managed economy.
•The GDP estimates released by the Ministry are based on accepted procedures, methodologies and available data and objectively measure the contribution of various sectors in the economy.
•The country’s interests are not served by imparting sensationalism through negativity that questions the credibility of the system.



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