Y V Reddy, former governor of the Reserve Bank of India (RBI) governor, once famously quipped that in India, not only the future but the past was also uncertain. The shocking divergence in gross domestic product (GDP) estimates of yesteryears—what we were told before and what we know now-- makes one doubt every single data put out by government’s statisticians.
Between the old series, the Sudipto Mundle-series and the newly released back series, economists are caught in a big puzzle as to who tells the truth and who lies about it. Minor revisions could have been blamed easily on statistics but not when growth figures swing by 180 basis points. That takes away some amount of the credibility of India’s statistical office and makes it vulnerable even to accusations that it is dancing to tunes of political masters.
Beyond the technicalities and economic jargon, one needs to acknowledge that India has a serious data problem. Either we don’t have the right infrastructure or the intent. One set of GDP numbers gave us the untrue picture. The only question is when. Only a neutral expert analysis could decipher the truth. It’s not just the sharply different GDP numbers itself but the way those are presented and the timing of the data released also makes the whole affair curious.
Rewriting India’s economic story
Forget the UPA vs NDA politics of it, the new numbers instantly demolish India’s impressive growth story we used to boast of post-the 2008 global financial crisis and raises major questions on the policy decisions of the Reserve Bank of India (RBI) that were predominantly based on these growth assumptions. The growth figures show a sharp disconnect with the manufacturing growth pick-up India witnessed the post-global crisis till 2011.
More importantly, it shoots down the theory that India was an exception in the post-crisis world. Also, there needs to be an explanation about a few other macro-pointers too. What about the spike in bank credit growth during the post-crisis era that is said to have contributed towards the supposed high economic growth?
What about the high gross fixed capital formation (GFCF) figures/savings growth in the subsequent years of high growth? How would one link the high corporate earnings growth and lower growth years? If growth was lower by one percentage point during the so-called high growth years under the new series, how did the growth pick up substantially in the post-demonetisation period when the economy was under the grip of a self-imposed cash crunch, lack of private investments, mounting pile of stalled projects and high level of unemployment?
Who wins the fight?
Politically, the new back series may put the NDA at an advantageous position since the average growth for FY06 to FY12 now comes to 6.9 percent (new series) from 8.2 percent (old series) and inferior to the 7.4 percent under the Modi-led NDA rule. In FY 2011, the growth figure has been sliced by 180 basis points to 8.5 percent from 10.3 percent. But remember, such a sharp revision will make the Indian economy figures a subject of ridicule before the world since nothing can be trusted anymore. All the economic assumptions, rating decisions and investment decisions will now come up for scrutiny.
To begin with, the press conference to announce the GDP back series numbers on Wednesday evening was led by the NITI Aayog which is essentially a political and economic advisory body, and not the Central Statistics Office (CSO)—the custodian of data of Indian economy. This itself was a departure for the first time and showed the CSO in extremely poor light and raises serious questions of credibility. Besides, this, two more aspects add to the debate.
One, the timing of the data release (it comes just six months prior to the country going in for the 2019 general elections) and second, the sharp departure from the findings of the Sudipto Mundle report on GDP back series released in August this year.
During the presser and later in his interviews with the media, the Chief Statistician Officer (CSO) Pravin Srivastava and NITI Aayog officials repeatedly reminded journalists not to make the ‘mistake’ of comparing the new backs series with the Mundle series. The question here is, why not?
Even if one can agree to the statistical difference that may occur under different methodologies, the fact can’t be denied that the underlying signals emanating from the real economy cannot be vastly different, neither can be the inputs from the official sources. Both the NITI Aayog and the CSO kept saying a mix of methodologies were used but there was no clarity on the major changes in the benchmarks.
No one likes Mundle
Mundle series showed that the GDP growth had actually touched the double-digit mark India has been desperately hoping for in 2006-07. That year, the growth touched 10.08 percent against 9.3 percent when calculated under the old methodology, it said. The new series shows a growth of 8.1 percent that year. Similarly, the growth in all other UPA-years has been slashed by almost one percent that gives a totally different story of the economy.
It is interesting to recollect the comment of NITI Aayog’s Rajiv Kumar when the Mundle report was released and UPA went to town to claim victory in the GDP battle. Then Rajiv Kumar seemed to agree with the Mundle report but dismissed the UPA growth figures saying this was funded by “untenable fiscal deficit and reckless expansion of commercial bank credit”. Union Finance Minister Arun Jaitley, too, acknowledged the Mundle findings saying the UPA benefitted from the NDA government policies and, like Kumar, dismissed the high growth phase characterised by high deficits (fiscal and current) and high inflation.
Also, at that time the NITI Aayog chief dug out a three-decade-old data to undermine the 2006-07 growth figure. He said the highest-ever recorded growth was in 1988-89 when the economy grew at 10.2 percent under the Rajiv Gandhi government. This, too, was not quality, sustainable growth, Kumar argued, finally resting his case saying the growth rate under four years of the Modi government is still higher than the growth rate of the last four years of the UPA. This argument, precisely, has been proven right under the new back series.
Over the last few years, India’s GDP figures have become an easy tool for politicians to claim winning points. It is easier to blame the methodology as it is very subjective and something that can be twisted easily as per the need of the hour. But, such sharp differences on estimates will surely raise critical questions on the credibility of India’s national accounts; it will be seen with a lot more suspicion. Statistics may not come to our rescue then.
(Data support from Kishor Kadam)
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Updated Date: Nov 29, 2018 12:47:32 IST