GDP overestimation claim: Govt must address data pessimism by enlisting independent experts to end confusion

Since this is the season of the ICC World Cup in cricket, it would be appropriate to discuss the current mess over India’s economic statistics in terms of the country’s favourite game. While economic advisors are like umpires, statisticians are more like scorers. Umpiring decisions are often discussed but scorers are rarely blamed. But we are going through a strange year in trying to decipher the state of the economy in which data estimates are being faulted. It is going to take an extra bit of hard work to rectify the situation because India, with a population of 130 crore people, is aspiring to be the world’s fastest-growing economy. It simply cannot afford data pessimism – the unsavoury business of not being seen as reliable on the numbers it puts out, on the basis of which investors and policy-makers decide what to do. Perhaps it is time to invoke another of India’s favourite pastimes: astrology. Economists are often like astrologers. While they agree on some principles, they resort to complex analyses involving permutations, combinations, possibilities and probabilities, much like astrologers invoking convergences and aspects of planets. What India is facing this week after former chief economic advisor Arvind Subramanian suggested that the country may have overestimated by 2.5 percentage points its GDP growth for six years in order to explain sluggish jobs growth is an embarrassing situation in which the ones left holding the economic baby after the CEA quit are on the defensive. There is a need to quickly and decisively end the statistical controversy to reassure key stakeholders. [caption id=“attachment_3312674” align=“alignleft” width=“380”] Representational image. Reuters[/caption] First up, we need to point out that what Subramanian has done is to explain a situation through econometric modelling, which is a bit like using a computer sketch, not a real photograph, to trace a crime suspect. But then, only a few weeks earlier, amid the heat and dust of the general elections that saw the return of Prime Minister Narendra Modi’s BJP, we saw the government hold back  key employment data from the National Sample Survey Office (NSSO)  on the ground that it was not reliable enough – in  what critics said was an attempt to hide its warts over the data (since leaked) showed unemployment (6.1 percent) at its highest in 45 years. In truth, Subramanian has bowled a googly to fox the government and draw it out of its cocoon. What we have therefore is not as much a genuine long-drawn debate that economists often go through to arrive at a consensus but a matching of wits. I would like to joke that ordinary economists quibble over sample size while legends cross swords over methodologies. What we really need now is a larger sample size – of economists. What better way for the government to resolve a bad PR problem. Finance Minister Nirmala Sitharaman may do well to call a bunch of former economic advisors and academicians in a special pre-budget session of extended consultations to put an end to the row that erupted when two members of the National Statistical Commission resigned and insinuated that the jobs scorecard was being fixed. The context is already set. After quitting the government, Subramanian had himself last year called for an expert view on the back series of GDP data to question revised figures. His latest salvo is just a louder way to draw out the government. As if to pre-empt Subramanian’s much-discussed paper at Harvard, NITI Aayog vice-chairman Rajiv Kumar said even as Modi took guard for his second innings that there is a need to revamp India’s statistical system. A controversial decision to merge the Central Statistical Office and the NSSO hangs in the backdrop. The NSSO has historically been like a third umpire in cricket with technical credibility. Bringing it under the Ministry of Statistics and Programme Implementation has a strong political flavour. We need to look beyond the clutch of sarkari economists – howsoever competent – to arrive at a broader consensus to increase international credibility. For all we know, what the PM’s Economic Advisory Council said this week to counter Subramanian to defend government data may be appropriate. The EAC cites both government panels and UN standards to defend its case. Nevertheless, we need, as they say in medicine, a credible second opinion. All this does not mean Subramanian’s potshot may be correct. He has, in effect, raised questions by broad allusion, not given true answers. In a series of tweets, Arvind Virmani, one of Subramanian’s several predecessors in the CEA’s chair, suggested that manufacturing growth (at the heart of the supposed overestimation), may have got mixed up with services somewhere, apart from pointing out that Subramanian’s cross-country exercise is an econometric juxtaposition, not true “creation” of data. It might be wise to remember that both the demographic transition and technological changes affecting production and consumption in India are profound, and old-world thumb rules of economists –howsoever erudite – can and should be called into question. Whatever the detail, given the astrological nature of some approximations, it is clear that the government needs to move fast, in its own interest and that of the country, to widen the sample of experts both in statistical methodologies and the shifting sands of manufacturing and services. More importantly, this has to win an endorsement from the high priests in international credit rating agencies and multilateral institutions in a reaffirming way. What we know is a simple truth: you cannot go back in history to turn apples into oranges, nor can you pass off a mango as a peach in the international markets. That is simply not cricket. (The writer is a senior journalist and commentator. He tweets as @madversity)