Source : The Times of India, Last updated : 12 Jun 2019,1:25 am

Real GDP growth 2.5% lower than official: Ex-CEA Subramanian

Real GDP growth 2.5% lower than official: Ex-CEA Subramanian
India's gross domestic product growth rate has been overstated by about 2.5 percentage points per year post 2011, former chief economic adviser Arvind Subramanian has said in a research paper, prompting economists to doubt the size of the claimed overestimation, and the government to defend the data .

Subramanian also called for revisiting the entire methodology and implementation for GDP estimation by an independent task force, comprising national and international experts.


"....instead of reported average growth of 6.9% between 2011 and 2016, actual growth was more likely to have been between 3.5% and 5.5%. Cumulatively, over five years, the level of GDP might have been overstated by about 9-21%," Subramanian said in his paper, published by the Center for International Development at Harvard University.

"This finding relates to averages over the 2011-16 period, which encompasses both the UPA-2 and NDA-2 governments. They do not speak of how this average over-estimation may have varied over time within the post-2011 period. At this stage, the data are not adequate to answer such granular questions," Subramaian, who was the chief economic adviser in the first Narendra Modi-led government, said.

"It is just a claim in a newspaper article. There may be some overestimation, but whether the overestimation is large or not is difficult to tell," Sudipto Mundle, distinguished fellow at the National Council of Applied Economic Research, told TOI. The new GDP methodology uses corporate data from the ministry of corporate affairs MCA-21 database, which some experts have said is flawed and needs a review.


gdp


Pronab Sen, former chief statistician of India, also expressed doubts about Subramanian's estimates. "Using the same data I could very well argue that there was an underestimation of GDP prior to 2011. There is nothing sacrosanct that India should be in line with other countries. We could be an outlier in terms of growth as China was," Sen said, referring to Subramanian's comparison of India with other countries. "There may be some overestimation, but not that large," he added.

Subramanian, who was the CEA in the first Narendra Modi government, said a variety of evidence suggests that the methodology changes introduced for the post-2011 GDP estimates led to an over-estimation of GDP growth. He said given the nature of the data, and the impossibility for researchers to reproduce the detailed methodology underlying the GDP estimates, the results in the paper are by no means the final word.

The former CEA, who is now a non-resident senior fellow at Harvard University, said further research, building on the results in the paper-which itself builds on preliminary work done in the economic survey- will uncover further insights. Stating that growth over-estimates matter not just for reputational reasons but critically for internal policy making, Subramanian said if the new evidence is right, it would imply that both monetary and fiscal policies over the last years were overly tight from a cyclical perspective. "Consider this. Real policy interest rates in the last few years have been at about 2.5%, well above the RBI's own estimate of the neutral rate of about 1.25-1.5%. Now, if real activity is weak, the policy rate should be below the neutral rate instead of exceeding it: the net difference could have been rates about 150 basis points higher than necessary," he said.

"The Indian policy automobile has been navigated with a faulty or even broken speedometer," he said, stressing the need to revisit the GDP data methodology.

He highlighted two major policy implications of the findings of the research paper. "First, growth must be restored as a key policy objective. Going forward, there must be both the urgency from the new knowledge that growth is weaker-than-believed and the re-embrace of growth as necessary to accomplish other objectives," he said.


The second implication, according to him, is to improve the quality and integrity of data in the country.


"India must restore the reputational damage suffered to data generation in India across the board- from GDP to employment to government accounts-not just by conferring statutory independence on the National Statistical Commission, but also appointing people with stellar technical and personal reputations," Subramanian said.


"If statistics are sacred enough to require insulation from political pressures, they are perhaps also too important to be left to the statisticians alone. Nothing less than the future of the Indian economy and the lives of 1.4 billion citizens rides on getting numbers and measurement right," he added.


Go to Source