Arvind Subramanian Defends His GDP Math
India was a fast-growing economy before 2011 driven by investments and growth, says Subramanian.
Former Chief Economic Adviser Arvind Subramanian defended his calculations that stated India overestimated its GDP growth by 2.5 percentage points during 2011-17, and questioned consistent higher growth amid weaker credit, export and investment growth during the same period.
Between 2012 and 2016, exports have grown 3 percent, while investments and credit grew at 3.2 percent and 3.3 percent, respectively, Subramanian said at the India Policy Forum organised by the National Council of Applied Economic Research. No country, he said, has achieved 7 percent GDP growth over any five-year period with a combination of 3.2 percent investment and 3 percent export growth since 1980.
India was a fast-growing economy before 2011 driven by investments and growth, Subramanian said, adding that investments, credit growth, corporate profits and exports fell afterwards. Yet, the economy somehow sustained a growth boom, he said.
Subramanian said a 12 percent drop in export growth between pre-2011 and post 2011 period could have reduced the GDP growth by 3 percentage points. India’s GDP growth, however, slowed marginally from 7.7 percent to 6.9 percent during that period, he said.
Subramanian said his recent study was a validation exercise, and not a new way to estimate GDP, and the method followed was to check consistency of GDP with macro indicators. The study used demand side, and not production side indicators, that avoid the need to select unrepresentative sectors, he said.
According to Subramanian, the “mutually consistent and reinforcing evidence” that indicate overestimation of GDP could be large include:
- India’s sustained high GDP post 2011 despite large negative macroeconomic shocks, unlike other emerging markets
- Outlier relationship between India’s GDP growth and macro indicators post 2011, but a normal relationship pre-2011
- India’s GDP growth has been higher than other countries with same exports and investment performance
- GDP deflator under estimation, which for given nominal GDP, implies real GDP growth overestimation
Subramanian said the response he received for the overestimation of GDP is that 4.5 percent growth would be a disaster, and India is not a disaster, hence growth cannot be 4.5 percent.
Subramanian said 4.5 percent growth represents some underperformance, but it certainly isn’t a “disaster”. It represents 3 percent-plus per capita growth, he said.