New Delhi: Former chief economic adviser Arvind Subramanian is set to produce another working paper on GDP estimation, as he looks to address criticism about his claim that India’s GDP was overestimated by 2.5 percentage points.
Subramanian’s previous paper, released last month, had pointed out that India may have only grown at an average of 4.5 per cent in the period 2011-12 and 2016-17, and not 7 per cent as suggested by official estimates.
Using various real sector indicators like exports, credit growth, freight rates and factory output, Subramanian had pointed out that these indicators declined significantly post-2011, but GDP growth rate was hardly affected.
Subramanian’s use of real indicators to measure the GDP came in for severe criticism from economists and statisticians. The Prime Minister’s Economic Advisory Council had pointed out that the methodology used by Subramanian overlooked tax data and didn’t have adequate services sector representation. The council said the correlation between the indicators and GDP growth could change over time.
Subramanian’s defence
Speaking at an event organised by the National Council of Applied Economic Research, Subramanian defended his GDP overestimation claims, saying his framework attempted “not to estimate but to validate GDP growth estimates”.
Discussing a yet to be released follow-up paper to his earlier study, Subramanian said: “India’s overall GDP deflator is substantially underestimated.”
The average differential between GDP deflator and Consumer Price Index (CPI) has increased considerably between the 2002-11 and 2012-16 periods, with CPI exceeding GDP deflator by 0.6 percentage points pre-2011 and by 2.9 percentage points post it, he noted. This underestimation, he said, could be seen as linked to the real GDP growth rate overestimation.
Both GDP deflator and CPI are measures of inflation, and GDP deflator is used as a divisor to estimate real GDP from its nominal counterpart.
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Where is the growth coming from?
Reacting to the arguments made in the past few weeks — that GDP could have grown as a result of government policies or a productivity surge — he went about demonstrating that none of these factors actually explain the high official GDP growth rates post-2011.
Acknowledging that some of the Modi government’s reforms like GST, Insolvency and Bankruptcy Code and welfare schemes like cooking gas and toilets have been truly transformative, he said that they cannot adequately explain the growth in GDP.
He also rejected the productivity surge argument. “It is unlikely that a productivity surge could have taken place under UPA-2 with its considerable policy collapse and a mini-crisis prevailing,” he said.
He identified India’s twin balance sheet problem — the NPA crisis facing its banks and the huge debt burden of its corporates — as one of the major shock events that may have impeded growth.
Response to criticisms
Subramanian also addressed some of the criticisms directed at his paper.
One set of criticisms, he suggested, has a largely cognitive element to it — it takes the following form: “A 4.5 per cent growth rate would be a disaster. India is not a disaster, therefore growth can’t be 4.5.”
Or, “a 4.5 per cent growth rate is close to the pre-1990s growth rate. How can we be so close to that disastrous period”?
Subramanian, however, mentioned that a 4.5 per cent growth rate, albeit not exceptional, is good. Also, he noted that the rate of growth of per capita income at present is double the rate during the pre-1980s period.
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He is an Anti National….just forget him
Cars are having their worst showing in 20 years. Investments in fifteen. Unemployment – although that is truly a minefield to measure – in 45. So except to the choir girls with their poms poms, it is clear that the economy is feeling like a 737 Max with its software glitch. UPA II was being hauled over the coals by the media on an almost daily basis. They are being patient, indulgent. Dr A S has put his finger on the truth. The exact figures are a matter of semantics.