For four years, India has battled the suspicion that its new and improved GDP series is a rose-tinted view of reality. Now that Narendra Modi is prime minister for a second term, he must see that battle for what it is: a lost cause.
Unlike harmless advertising puffery around a toothpaste that kills 99.9% of germs, the narrative of 7% growth has done real damage.
This week, a top former government adviser provided a statistical estimate. The actual GDP growth rate between 2012 and 2017, according to Arvind Subramanian’s working paper for Harvard University, may have been 2.5 percentage points lower than the official 7% rate.
India’s level of economic output may be overstated by anywhere between 9% and 21%. The issue isn’t whether Subramanian’s technique of looking at other countries’ performance to build a picture of India’s growth is robust. As my colleague Mihir Sharma argues, if senior officials who served Modi in his first term don’t believe the data, nobody else will trust them either.
Also read: Lower GDP growth numbers have punctured the myth of India’s economy
Going by the early official response to the critique, especially the promise of a point-by-point rebuttal to come later, it’s clear that Team Modi wants to continue to brazen it out. The prime minister should see the economic cost of that approach, even if his advisers don’t.
Voters don’t care about abstract statistical artifacts like GDP. They care about jobs, state subsidies and programs, and the cost of living. It was India Inc. that bought into the claim of 7% growth, and found itself badly deceived when the expected operating profits to repay creditors never materialized. Investments had stalled even before Modi’s first term, but the deleveraging that was badly needed to deal with a slowdown also got delayed.
Misleading GDP data is one of several reasons why most balance sheets in India are stressed today. It’s not surprising, therefore, that the most ardent supporters of the new GDP series are accountants by training. When 108 economists and social scientists wrote to the government asking it to restore sanity to the published figures, 131 accountants wrote their own letter, accusing the former group of running a politically motivated campaign.
India’s bean counters do have a dog in the GDP fight. Some of them, as fund managers, have given investors’ money to firms that are in deep trouble now. Others, as auditors, turned a blind eye to sharp corporate practices, related-party lending and self-dealing, perhaps thinking that all boats would be kept afloat by high growth. Now they’re scared.
Also read: Company directors will have to clear appointment exams as Modi cracks down on corruption
Naturally, financial intermediaries in Mumbai don’t want Modi to tell creditors and debtors the truth about growth, especially since they can’t undo their previous bets on 7% expansion without career-limiting, wealth-destroying – and possibly even freedom-endangering – consequences. But if Modi doesn’t order a thorough revamp of the discredited data in his second five-year term, the danger is that every quarterly growth announcement from now on will be discounted by 2.5 percentage points – the Subramanian factor. That means asking investors to accept that the March quarter’s published 5.8% GDP expansion – a fourth straight quarter of cooling – may have been as low as 3.3%.
Who will invest in a labor-surplus nation at those near-recessionary growth rates? – Bloomberg
So where do we go now?
No wonder so many accounts are turning NPAs. Companies overstressed themselves in the hope that their growth rate is the fastest in the world and they shall be able to service their debts.
Do we really have an escape route from the “FILIBUSTER OF LAST FIVE YEARS THAT WE ARE THE FASTEST GROWING ECONOMY THE WORLD?” Especially when the author is being naive to expect that the same set of people who are responsible for such a state to take corrective steps.
GDP is such a government controlled statistic that you have to rely on a proxy statistic with verifiable information to track true GDP. In the past a very accurate proxy statistic for GDP was electricity generation, but in a more modern information based economy that is not relevant anymore, there has been talk of air travel value being a close proxy statistic. If you go by that, India was the fastest growing domestic aviation market up until last year, this year it’s actually going in negative!! Also China’s domestic aviation market is expected to exceed US market in couple years, that should correspond pretty close to when they will overtake US.
To avoid giving undue weight to one indicator, the good doctor used seventeen.
Being of modest intellect, I have been chipping off 200 basis points for several years now, ever since the methodology was changed. The more Dr Subramanian’s perfectly reasonable findings are contested, the less credible we will appear to the rest of the world.
Wow…. a “working paper” is now being sold as gospel truth. And why can’t anybody contest Subramanian’s immutable “findings” with equally reasonable explanations?
“Less credible”…yeah let’s see “rest of world” vote with their feet.
National income accounting is a tough task esp in a developing country.
Wonder why this pseud had nothing to say when committee after committee were looking into how national income should be measured…..btw: for your info’ these committees were formed in UPA era and completed their task by 2014, new methodology adopted in 2015.
Instead of commenting on problems of estimating GDP esp with a new methodlogy which goes back to UPA years, Andy Mukherjee as his wont — like the entire DOOMBERG team in India — writes a polemical piece.
Mukherjee/ Doomberg : revisit your polemical articles after 6 months/ one year. How much FDI comes, how much Indian companies grow…..we shall see.
Congress’s socialism since independence has done real damage to our country’s economy. So Socialist Modi is following in Congress footsteps.
Though claims made by Arvind Subramanian have yet to be validated by government and other third parties, Lutyens media has got the stick to beat Modi. Now for several months to come, Lutyens media supported by Khan market gang will churn manufactured stories like this one and flood the print media with the propaganda based on Subramanian factor. As TV discussions have already indicated flaws in Arvind Subramanian’s method and the use of selective data which is incomplete also. Government is also reviewing the claim. However, Lutyens gang has already made their mind as they had done in case of Modi’s Rs 15 lacs gift to people from the recovery of black money and creation of two crores jobs per year. No amount of arguments will stop them from beating their drums and using DJ sound system . Any number of report may invalidate the claim but the Lutyens will keep their new found stick polished and oiled. However, as it has always been the final verdict is with the people and not with the Lutyens gang.
Arvind’s article on GDP estimation using econometric methodology has raised academic debate on the issue. Since his numbers are not tallying with the standard methodology, it has aroused suspicion about data quality. The debate will go on for a while and finally, everyone will agree to disagree and move on to other topic. Arvind will also find another topic to raise new controversy in the meanwhile. The consequences of such (needless) controversy are, however, unlikely to be damaging as projected by Andy, even if one links it to Modi’s directly. GDP growth rate is just one broad indicator amongst many other far more important ones for potential investors. However, an audit of the revised methodology should be undertaken to ensure that GDP calculation process is implemented properly.