Debate around GDP data in India

Arvind Subramanian, former chief economic adviser (CEA) to the finance ministry, has claimed that India’s gross domestic product (GDP) numbers between 2011-12 and 2016-17 may have been overestimated.

The former CEA said growth as measured by GDP growth rate was overestimated by 2.5 percentage points for each year between 2011-12 and 2016-17. The period spans the rule of both the UPA 2 and NDA 2 governments. Subramanian wrote this in his paper ‘India’s GDP Mis-estimation: Likelihood, Magnitudes, Mechanisms and Implications’ (Harvard University), that part of the overestimation could be related to a key methodological change that affected the measurement of the formal manufacturing sector. But for the changes, as he pointed out, actual growth during this period is likely to have been around 4.5% and not the 6.9% average, according to official estimates.

He said these doubts were raised and articulated within the finance ministry, but he needed the time away from his job to do the research necessary to challenge the official numbers. He said the overestimation of figures had nothing to do with politics and the methodological changes were a result of substantive work done by technocrats, largely during the UPA government.

The government’s response has so far been measured, even as it said that it would issue a point-by-point rebuttal of Subramanian’s claims. It has said that data requirements are immense and diverse economies such as India take time to evolve relevant data sources before they can be fully aligned with the UN-adopted System of National Accounts that it adheres to. The government said a comparison of the old and new data series is not amenable to simplistic models. It pointed out that GDP growth projections by various national and international agencies are broadly in line with the statistics ministry’s estimates.

This is not the first controversy regarding the GDP data. A study conducted by the National Sample Survey Organization in the 12 months ended June 2017 and released last week has found that as much as 38% of companies that are part of MCA-21 database of companies and are used in India’s GDP calculations could not be traced or were wrongly classified. This was published in Mint on May 10^th, 2019.

The NSSO report clearly states that 16.4% of the firms listed in the MCA-21 frame either could not be traced or were found to be closed. Another 21.4% were found “out of coverage”, suggesting they were no longer operating as service sector firms though they had registered and were being captured in national accounts.

Government statisticians have for long used small surveys to gather the raw data that are required to make estimations about the growth of the wider economy. This, however, changed in 2015 when the government introduced a new GDP series with 2011-12 as the base year (from the previous base year of 2004-05) and introduced the MCA-21 database as the mainstay for calculating GDP figures. 

Even at the time it was being introduced in the national accounts calculations, several economists had raised questions on this issue.

Many believe that the poor quality of raw company data could heavily skew the measurement of private sector business growth, which is a part of the overall GDP of the economy. When data gathered from the MCA-21 database was first used to revise earlier growth figures, sectors such as manufacturing showed significant growth in size in 2013-14. This was in stark contrast to the earlier estimates that showed an actual contraction in the size of manufacturing.

The government issued a statement saying that there is no impact on the existing GDP/GVA calculation because of the NSSO report. It further added that the government commissioned NSSO to do the survey as it wants to understand the data gaps and come up with remedial steps during the new base creation exercise.

The government stated that companies classified as “out-of-coverage” by the NSSO still contributed to the economy even though they may not fall strictly under the services sector. It further stated that the weightage given to companies that report their financial numbers is far greater.