Former Chief Economic Adviser says Indian GDP overestimated, govt says not

New Delhi: Chief Economic Advisor (CEA) Arvind Subramanian addresses at the launch of a World Bank report on South Asia's Hotspots: The Impact of Temperature and Precipitation Changes on Living Standards at the Indian Council for Research on International Economic Relations, in New Delhi on July 2, 2018. (Photo: IANS)
Former Chief Economic Adviser Arvind Subramanian.

New Delhi: The government on Tuesday rebutted former Chief Economic Adviser Arvind Subramanian's contention regarding over-estimation of the Gross Domestic Product (GDP) data and stated that proper methodology was followed in calculating the country's overall economic growth estimates.

"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 Ministry of Statistics & Programme Implementation said in its rebuttal.

The rebuttal comes after Subramanian questioned the change in GDP calculation methods and numbers effected last year.

In his recent research paper published by Harvard University, the former CEA has said there is a possibility of substantial overestimation in the growth figures while stating that the actual GDP growth between 2011-12 and 2016-17 was around 4.5 per cent as against 7 per cent.

Subramanian has suggested that India's GDP growth estimate has been overestimated by around 2.5 percentage points between 2011-12 and 2016-17, a period that covers the years during both the UPA and the NDA governments.

The adoption of a new GDP series to measure the country's economic growth, months after the government itself slashed previous UPA-era GDP growth rate for 2010-11 from the earlier estimated 10.3 per cent to 8.5 per cent, has fuelled controversy.

However, the ministry said: "Estimation of GDP in any economy is a complex exercise where several measures and metrics are evolved to better measure the performance of the economy".

According to the ministry, the purpose of global standardisation and comparability, countries follow the System of National Accounts (SNA) evolved in the UN after elaborate consultation.

"In India, the Base Year of the GDP series was revised from 2004-05 to 2011-12 and released on 30 January, 2015 after adaptation of the sources and methods in line with the SNA 2008," the ministry said in its rebuttal.

Besides, the ministry pointed out that the methodology of compilation of macro aggregates has been discussed in detail by the Advisory Committee on National Accounts Statistics (ACNAS) comprising experts from academia and institutions like the Reserve Bank of India (RBI).

"It may be noted that decisions taken by these Committees are unanimous and collective after taking into consideration the data availability and methodological aspects before recommending the most appropriate approach," the ministry said.

As per the statement, structural changes in the economy have necessiated the revision of the base year of macroeconomic data points such as "GDP, Index of Industrial Production (IIP), Consumer Price Index (CPI) etc" on a periodical basis to ensure that indicators remain relevant.

"Such revisions not only use latest data from censuses and surveys, they also incorporate information from administrative data that have become more robust over time."

Subramanian's stint with the NDA

From 2015 to 2018, Subramanian presented four economic surveys, and not even once did he raise the same issue.

The overall GDP growth for 2017-18, stood at 6.7 per cent, according to the government data. it is in the last quarter of this fiscal that India surpassed the growth of China. The Indian economy had posted the GDP growth of 7.1 per cent for the previous financial year 2016-17. In 2015-16, India's growth at 7.6%, the fastest in five years and the previous fiscal in 2014-15, the economy had posted a growth rate of 7.2 per cent.

During all these years, Arvind Subramanian defended, supported and took pride in these GDP numbers alongside Finance Minister Arun Jaitley each time and there was not a single word on the methods, numbers or the reasons behind such figures.

Subramanaian abruptly ended his tenure to return to teaching, citing personal reasons in June 2018. He had taken charge as the CEA on October 16, 2014 for a period of three years. In 2017, his term was extended for a year.

In the paper, Subramanian, who quit as the CEA in June last year, used 17 "real" indicators such as vehicle sales, industrial production, credit growth and exports and imports, to check for their correlation with GDP figures during the years 2001 and 2017.

In 2016-17, when two major structural reforms were introduced -- GST and demonetisation -- in the Economic Survey, he stated: "Against the backdrop of robust macro-economic stability, the year was marked by two major domestic policy developments, the passage of the Constitutional amendment, paving the way for implementing the transformational Goods and Services Tax (GST), and the action to demonetise the two highest denomination notes.

On demonetisation, he had stated: "The aim of the action was fourfold: to curb corruption; counterfeiting; the use of high denomination notes for terrorist activities; and especially the accumulation of "black money", generated by income that has not been declared to the tax authorities".

On November 30 2018, the Ex-CEA in his book, 'Of Counsel' said demonetisation was draconian. The sharp negative adjective was a contrast to what he had said when he was CEA. "Demonetisation has been a radical, unprecedented step with short-term costs and longterm benefits. The liquidity squeeze was less severe than suggested by the headlines," he had said in the 2016-17 Economic Survey.