GDP game: How to cherry-pick your convenient growth figures, reasons and always claim the winner’s prize

The ongoing gross domestic product (GDP) political game has got an interesting set of rules. Anyone can pick a growth number, a convenient period for comparison, a set of reasons that suit their purpose, and always claim victory.

Here’s how the game has worked so far. The Narendra Modi government changed the GDP calculation methodology in 2015 from factor-cost-based formula to market-cost-based method, i.e. by using gross value-added (GVA) at market price. Also, the GDP base year was changed from 2004-05 to 2011-12. This immediately triggered a big hue and cry.

Critics said the Modi government is changing methodology to show better GDP numbers for political advantage. Also, the GDP data is hanging in isolation for there is no connection whatsoever with other key macro data that should ideally correlate with the headline GDP numbers, they said. The Congress party was at the forefront of this attack. The BJP defended this charge by saying that the new methodology shows the accurate picture and that the old one was flawed. For the general public, the GDP picture remained largely unclear due to these anomalies and, more importantly, the lack of back series data under the new methodology, which is essential for any economist to do comparative studies.

Congress loves Mundle...

This lack of clarity and the slugfest went on a for a good three years until mid-July this year when an expert panel constituted by the National Statistical Commission submitted its report to the government on the real sector statistics, as part of which it offered the back series data under the new GDP methodology. The report stirred the proverbial hornet's nest because the panel headed by Sudipto Mundle presented data that showed 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 9.57 percent under the old when calculated under the old methodology, it said. This was a golden opportunity for the Congress party to claim victory in the GDP debate.

File image of Prime Minister Narendra Modi. AP

File image of Prime Minister Narendra Modi. AP

Former Union finance minister P Chidambaram jumped to take credit saying the UPA-I did an average 8.87 percent growth with the magical 10 percent in 2006-7 and UPA-2 managed an average growth of 7.39 percent, thus delivering the best growth figures since Independence. Interestingly, till then, the Congress had dismissed the new methodology saying it didn’t show the true picture of the economy.

But BJP does not ...

Obviously, the Congress party claiming the best-ever GDP growth using a panel report, commissioned under its rule, didn’t go well with the BJP government and the party. Union finance minister Arun Jaitley, NITI Aayog Vice chairman Rajiv Kumar and party spokespersons such as Sambit Patra were fielded to counter Chidambaram and defend the Modi government. The most interesting response came from Patra who said the Mundle report was not official and that it had not been accepted by the government yet. That’s interesting since the panel was appointed by the government itself.

Rajiv Kumar seemed to agree with Mundle report but dismissed the UPA growth figures saying this was funded by “untenable fiscal deficit and reckless expansion of commercial bank credit”. Jaitley, too, acknowledged the Mundle findings saying the UPA benefitted from NDA government policies and, like Kumar, dismissed the high growth phase characterised by high deficits (fiscal and current) and high inflation.

Interestingly, NITI Aayog chief went on to dig 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 a 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.

The winner? All of them

So, at the end of this GDP blame game, what do we have here? Clearly, there are no fair rules in the game. Anyone can pick and choose the growth figures of their choice and reasons, and always win the prize. The Congress party, which till recently disapproved of the new GDP methodology, suddenly loves it. It now claims to be victorious for gifting the economy the dream-like 10 percent growth figure in 2006-07 and 1988-89. The BJP now seems to disown the Mundle panel. It, too, claims to be the winner by highlighting how the Modi government beat UPA-II in terms of average growth figures and by explaining how the double-digit growth figures of Congress governments were not good enough for reasons of quality. Thus, in the GDP debate, both the Congress party and the BJP are winners by their own measuring yardstick.

That leaves some questions

What we don’t have yet are answers to the following questions:

First, Forget the Mundle panel GDP back series data. Why is a formal back series data missing even after three years of introducing the GVA model? Having a back series data is crucial to analyse the economy and for the central bank to decide the course of the monetary policy. Why is it taking so long for the Central Statistics Office (CSO) to compile this crucial set of numbers keeping everyone in the dark on the state of the growth picture of yesteryears? What if the Reserve Bank of India (RBI) got it assessments on the economy wrong while taking rate decisions since it didn’t have a clear picture on how the growth scenario evolved?

Second, even when everyone claims high growth (between 7-10 percent) in the past decade, why we do have a fractured economy with questionable numbers on job creation, manufacturing sector growth, the health of agriculture sector, a still vulnerable informal sector and a crisis-ridden banking sector? Economists, time and again, have pointed out this anomaly. The GDP growth figures, under the new methodology, often stand in isolation when compared with other key macroeconomic numbers? This, at least, wasn’t a problem with the old series. This is perhaps a reason why the former RBI governor Raghuram Rajan said in 2016 that there are problems with the way we count GDP and why we need to be careful sometimes just talking about growth.

Third, one of the most important points in the GDP debate is whether it is possible to achieve high growth, say a 10 percent growth on a sustainable basis in an emerging market economy avoiding the company of high inflation and high fiscal deficit?

Perhaps the suicide-prone farmer across different states in the country and the struggling small entrepreneurs, aren’t too bothered about the GDP debate as to who won and who lost. For them, the 10 percent growth in 2006-07 and the 7 percent in the recent years might not have made much of a difference.

If one looks at the per capita income levels, India is far behind many countries whom we have beaten on the GDP growth rate. Take France for instance. India has an estimated per capita income of $7,060 while France has $43,720, some six times more than that of India. India is ranked at the 123th position when it comes to per capita income at PPP while France is in the 25th position. For the record, China, which has a population of 1.4 billion has a per capita income of $16,760. Perhaps, the governments, both UPA and NDA, are too fixated on the GDP figures and less on the broad-based economic recovery that can bring in actual changes for the common man on the ground.

(Data support by Kishor Kadam)


Updated Date: Aug 20, 2018 13:05 PM

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