In January 2015, India’s Central Statistics Office (CSO) introduced a new series of National Account Statistics.
The resultant changes in the calculation of GDP have led to a series of controversies. Here is a look at them.
What were the changes made?
The new series made several changes; in particular, it revised the base year from 2004-05 to 2011-12.
It also employed a new methodology to estimate India’s gross domestic product (GDP) and used new data sets to arrive at the GDP.
What was the resultant contention?
The CSO’s changes were in line with international norms of national income accounting.
However, doubts were raised about the new GDP estimates.
Revising base years, improving methodologies and opting for better databases are part of normal practice in national income accounting.
But the debate intensified when, in 2018, the statistical establishment released two back-series GDP data that contradicted each other.
Back series GDP data recalibrated the GDP 'data for past years' based on the 'new methodology'.
How different were the two back series GDP data?
The first back-series was presented by the National Statistical Commission (NSC) in July 2018.
It found that the average economic growth between 2005-06 and 2011-12 was 8.6% instead of the 8.3% according to the old series.
The second back-series was calculated by CSO and published in November 2018.
It found the average economic growth between 2005-06 and 2011-12 to be just 7%.
The statistical debate quickly acquired a political colour because of the years concerned.
What was Arvind Subramanian's observation?
Arvind Subramanian was India’s Chief Economic Adviser between 2014 and 2018.
Earlier in 2019, he argued that the new series overestimated GDP growth by as much as 2.5 percentage points. (Click here to know more)
In other words, if last year’s GDP growth was 7%, then according to Subramanian, the actual GDP growth would be only about 4.5%.
It was argued that India’s GDP growth rate between 2011 and 2016 appears out of sync with the trend of key macroeconomic indicators including investment, exports and credit, etc.
This is starkly in contrast to how things were for a decade before the new series with 2011-12 as the base year.
The disconnect between the indicators post-2011 becomes even clearer when India’s data are compared to the average of six emerging economies.
India’s GDP declined far less than the 6-country average despite its macro-indicators being worse hit.
Subramanian argued that higher GDP growth between 2011 and 2016 was not backed by -
movement in key macro-indicators
a surge in productivity (otherwise corporate profits would not have declined in this period)
a surge in consumption (otherwise consumer confidence and industrial capacity utilisation would not have dipped sharply)
He finally argued that the GDP Deflator (level of inflation) was considerably less than the retail inflation (as measured by Consumer Price Index) in the 2011-16 period.
[GDP Deflator is used to subtract from nominal GDP growth in order to arrive at the “real” GDP growth rate.]
This essentially resulted in an overestimation of “real” GDP growth rate.
What are the counter claims to this?
Arvind Subramanian has shown that the nominal GDP growth rate, which is the only observable variable, has not changed under the old and new series.
Secondly, there was no consolidated Consumer Price Index (CPI) before 2011.
So, arguing that the gap between CPI and GDP deflator was low between 2002 and 2011, and wide between 2011 and 2016, is unfounded.
