New Delhi: After the Prime Minister’s Economic Advisory Council, the 2019-20 Economic Survey has defended India’s growth numbers and dismissed arguments raised by former chief economic adviser Arvind Subramanian that India’s GDP numbers are overestimated.
The survey, authored by a team led by Arvind Subramanian’s successor Krishnamurthy Subramanian, dedicates an entire chapter to assuaging investor concerns, at a time when India’s economic growth is expected to slow down to an 11-year low of 5 per cent.
“As investors deciding to invest in an economy care for the country’s GDP growth, uncertainty about its magnitude can affect investment. Therefore, the recent debate about India’s GDP growth rates following the revision in India’s GDP estimation methodology in 2011 assumes significance, especially given the recent slowdown in the growth rate,” the survey states.
“Using careful statistical and econometric analysis that does justice to the importance of this issue, this chapter finds no evidence of mis-estimation of India’s GDP growth.”
What Arvind Subramanian had argued
In a working paper last June, Arvind Subramanian had argued that India’s GDP was overestimated by 2.5 percentage points, and that India’s economy may have grown at an average of 4.5 per cent in the period between 2011-12 and 2016-17, as against the official figures of 6.9 per cent.
Arvind Subramanian, the CEA (October 2014-June 2018) for most of the Modi government’s first term in power, used a series of high-frequency indicators to make his claim that GDP and these indicators were moving in divergence.
We are deeply grateful to our readers & viewers for their time, trust and subscriptions.
Quality journalism is expensive and needs readers to pay for it. Your support will define our work and ThePrint’s future.
He had pointed out that data from indicators like electricity consumption, railway freight traffic, index of industrial production, sales of two-wheelers, commercial vehicles and tractors, airline passenger traffic, foreign tourist arrivals, petroleum consumption, cement, steel, overall real credit, real credit to industry, and exports and imports of goods and services did not justify the GDP numbers.
His findings had raised questions about the credibility of India’s macroeconomic data and had forced the Prime Minister’s Economic Advisory Council to rebut the claim through a detailed paper, wherein the advisers questioned the way Arvind Subramanian had arrived at his findings.
Economic Survey methodology
The Economic Survey uses new firm district-level data and other indicators like nutrition and electricity to dismiss the former CEA’s argument.
“First, the granular evidence shows that a 10 per cent increase in new firm creation increases district-level GDP growth by 1.8 per cent. As the pace of new firm creation in the formal sector accelerated significantly more after 2014, the resultant impact on district-level growth and thereby country-level growth must be accounted for,” the survey states.
“Along these lines, Purnanandam (2019) shows that India’s improvement in indicators such as access to nutrition and electricity might explain the higher growth rate in Indian GDP post the methodological change.”
It adds that new firm creation in the service sector is far greater than in manufacturing, infrastructure or agriculture.
The survey, however, concedes that there is a need to invest in ramping up India’s statistical infrastructure, and that the setting up of the 28-member Standing Committee on Economic Statistics (SCES), headed by Pronab Sen, India’s former chief statistician, is important.
News media is in a crisis & only you can fix it
You are reading this because you value good, intelligent and objective journalism. We thank you for your time and your trust.
You also know that the news media is facing an unprecedented crisis. It is likely that you are also hearing of the brutal layoffs and pay-cuts hitting the industry. There are many reasons why the media’s economics is broken. But a big one is that good people are not yet paying enough for good journalism.
We have a newsroom filled with talented young reporters. We also have the country’s most robust editing and fact-checking team, finest news photographers and video professionals. We are building India’s most ambitious and energetic news platform. And we aren’t even three yet.
At ThePrint, we invest in quality journalists. We pay them fairly and on time even in this difficult period. As you may have noticed, we do not flinch from spending whatever it takes to make sure our reporters reach where the story is. Our stellar coronavirus coverage is a good example. You can check some of it here.
This comes with a sizable cost. For us to continue bringing quality journalism, we need readers like you to pay for it. Because the advertising market is broken too.
If you think we deserve your support, do join us in this endeavour to strengthen fair, free, courageous, and questioning journalism, please click on the link below. Your support will define our journalism, and ThePrint’s future. It will take just a few seconds of your time.