India’s growth figures come under a cloud

Hardly a fortnight since the new Modi government took over reins of power at the centre in its 2nd avatar with a Brute Majority of 352 with allies in the NDA, an economic controversy has broken out with both government and the former Chief Economic Advisor (CEA) sparring over growth figures. Former CEA Dr Arvind Subramanian has disputed the growth figures projected by the government for FY 2019-20. He has written the Economic Survey in previous years in his role as the CEA. In his latest paper written for Harvard University, he has contested the figures of the government of a GDP growth rate of 7% and said actually growth rate could be around 4.5 %. He has also claimed retail inflation(food and groceries) could be high.
India’s GDP growth has been overestimated by 2.5% during 2011-2017, he said.
Here are some interesting facts to consider:
• The overestimation occurred after the UPA government changed the methodology in calculating GDP in 2012, says the CEC’s report
• The latest study throws more doubt over India’s economic statistics
Dr Subramanian feels that the government may have been painting a far rosier picture of economic growth than the more modest reality of the past decade.India has been considered the crown of the world’s fastest-growing major economy but the CEA’s study pricks the balloon saying expansion was overestimated between 2011 and 2017. Rather than growing at about 7% a year in that period, growth was about 4.5%, according to the research paper, published by the Center for International Development at Harvard University.
The overestimation occurred after the previous Congress-led government changed the methodology in calculating GDP in 2012. One of the key adjustments was a shift to financial accounts-based data compiled by the Ministry of Corporate Affairs, from volume-based data previously. This made GDP estimates more sensitive to price changes, in a period of lower oil prices, according to the research paper. Rather than deflate input values by input prices, the new methodology deflated these values by output prices, which could have overstated manufacturing growth.
Krishnamurthy Subramanian, the government’s current chief economic adviser, and spokesman for the Statistics Ministry did not react immediately to the paper in the public domain .The latest Harvard study brings into question claims over India’s economic statistics. Critics have questioned India’s high growth estimates under Prime Minister Narendra Modi’s government. A delayed jobs report was mired in controversy earlier this year, two statistics officials reportedly quit after raising concerns about the data, and a group of 108 economists from around the world questioned whether politicians were trying to influence the figures.
“India must restore the reputational damage suffered to data generation by it across the board, from GDP to employment to government accounts,” Subramanian said. “At the same time, the entire methodology and implementation for GDP estimation must be revisited by an independent task force.”
The BJP led NDA Government has however defended the GDP Figures forecast.
The Ministry of Statistics and Programme Implementation (MoSPI) has jumped into the controversy saying that the GDP estimates released by it are based on accepted procedures, methodologies and available data and objectively measure the contribution of various sectors in the
The government on Tuesday strongly argued that its growth estimates were backed by a statistically rigorous method that both the International Monetary Fund (IMF) and the World Bank have validated.“GDP growth projections brought out by various national and international agencies are broadly in line with the estimates released by MoSPI . 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 MoSPI said in a statement released to the media. These six years are evenly spread between two regimes, with three years each falling between the Manmohan Singh-led UPA-2 government (2009-14) and the Narendra Modi-led NDA 2 government (2014-19).Dr Subramanian, who quit as the CEA in June last year, sought to estimate the Indian economy’s growth by posing some basic questions: how often are people buying cars? Are companies and individuals borrowing more or less during a given period?Household spending give early signals of the onset of an economy-wide revival or a slide. The clearest indications are available in any market or mall.These, in turn, get reflected in corporate balance sheets, bank loans, tax collections, factory output and other data. If people are buying more cars, ideally, it should imply that banks are lending more, and more vehicles are wheeling out from car factories. The reverse should happen in times of a slowdown.
Simply put, Subramanian’s argument raises a basic question: How come India is still growing at 7% though bank credit has been growing only at 9% since 2014?Subramanian’s view about a weak correlation among proxy indicators such as car sales and bank borrowing after 2011-12, however, run contrary to some other experts’ opinion who point out evidence to the opposite.Such an argument assumes that India’s growth is highly credit dependent, almost one for one.Apoorva Javadekar, an assistant professor of finance at the Indian School of Business (ISB), has contended such an argument was deeply flawed .He saysbank credit and GDP growth have diverged during multiple periods even using the older GDP calculation method.More than 50% of new corporate funding is coming from non-bank sources — either equity, non-banking financial companies (NBFCs) or foreign debt. The government has responded to Subramanian’s paper by saying that as with any international standard, the data requirements are immense and diverse economies like India take time to evolve the relevant data sources before they can be fully aligned with the System of National Accounts 2008 (SNA) requirements.SNA is the latest version of the international statistical standard for the national accounts, adopted by the United Nations.

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