There’s Nothing Political About The New GDP Series Data, Says NITI Aayog’s Rajiv Kumar
The different methods used by CSO and NSC have resulted in divergent growth rates.
The government has released the official estimates for the back-data of the new GDP series. The methodology used for the official estimates is significantly different from what was used by the National Statistical Commission in a draft report put out earlier this year. The different methods used have resulted in divergent growth rates.
In particular, the two back-series differ notably in the growth rates during the post global financial crisis year. This has led to a drop in the average growth rates seen under the previous UPA government. "Politicising the data is wrong. The earlier series had consistently overestimated the contribution of the services sector. CSO has accepted the divergence and given reasons for the same," Rajiv Kumar, vice chairman of NITI Aayog, told BloombergQuint in an interview.
He went on to explain that significant changes have been made in methodology followed to assess activity in sectors like telecommunications and finance. In telecom, data for minutes of usage has been built into the new calculations. This is in contrast to the use of the number of subscribers earlier. In the financial services sector, international guidelines stipulate that central bank data cannot be used for computing GDP growth as it's not a market entity. This has now been taken out even in India.
Commenting on the key takeaways from the data for the economy, Kumar said that one key takeaway is that global factors remain important for the Indian economy. India must attempt to move towards double-digit growth and to do that, exports must be given greater policy attention.
Edited excerpts from the conversation:
The back data on the new series is similar to the old series but the divergence this time suggests it is notable.
The direction is still the same. The back series released this time has increased the level of the GDP at constant prices so there is an increase in the level of the activity. But the growth rate has tended to come down because you cannot have both growing at the same rate. The new data has been estimated by much superior methodology, has had a much larger data source with a better data coverage and now it’s much more in sync with the System of National Accounts, 2008, and thus makes our data more globally comparable than the earlier series. Let me assure you that this has been vetted very seriously and rigorously by some of the country’s best statistical minds and experts for which the NITI Aayog arranged two round table meets where this data was discussed. We took the trouble for over a month to ensure that whatever is put out is as good and robust methodologically as possible.
Over what period of time and how many suggestions were taken on board before arriving at this one? Why was there such a difference in the methods used by the National Statistical commission and these numbers put out by the CSO, although fronted by the NITI Aayog?
CSO and NITI Aayog are part of the same government and NITI (Aayog) had arranged for all expert consultation and vetting of the data. NITI Aayog is a technically competent and robust body. NITI Aayog and CSO work very closely and in tandem with each other. At one point, Ministry of Statistics and Programme Implementation used to be organically connected to NITI Aayog and its predecessor. I don’t think that question (on difference in methods) is a valid one. On how far the consultations have been done, the back series has taken over two-and-a-half years to be prepared and there have been several iterations. The former chief statistician, Dr TCA Anant, who started this process and was one of the people who had been overseeing it, and among the ten who had been consulted to vet this methodology. He would vouch for the fact that a large number of suggestions were made by national and international experts to make sure this data and this series is much more in sync with the globally-accepted norms that we have had. The National Statistics Commission made a much more simplistic exercise, made some drastic assumptions. For 2011-12, which is the base year for the new series and the end point of the earlier series, what they did was to estimate the GDP level with 2004-05 as base, and with 2011-12 as base, they saw that there was a Rs 3 lakh-crore difference between the two levels and distributed that level over the previous years until 2004-05 on the assumption that growth rates do not generally change much and they could therefore distribute it in some sort of an equal measure over the previous years. This has been done and you must ask them how they have done it. But what the CSO has done this time is to recalibrate economic activity in the country for the previous years. Earlier, they used the Annual Survey of Industries data which was a very small segment of the corporations or the companies that you had. The new series uses 500,000 companies’ data released by the Ministry of Company Affairs. Using sector-specific price indices other than aggregate price indices will deflate the data. There are a large number of improvements that this series has done over the previous one.
The GDP back data story has already been politicised. You suggest that this methodology was arrived at; you didn’t offer information when this had been arrived at. The biggest adjustment has come in the one year when the old series and the statistical commission data was suggesting a 10 percent growth and now this series brings it down to 8 percent. The biggest adjustment seems to fit into the political narrative of which government saw a faster growth? Was it the UPA or the NDA?
This is not right. It is ill-timed to politicise this discussion. There is nothing political about this discussion. The difference of an average of 1.7 percentage points exists through out the period and not just that one year mentioned. This difference comes because the earlier series with a base of 2004-05, had consistently over-estimated the growth of the tertiary sector. Therefore its had gone up to 53-54 percent and has now come down. Within the tertiary sector it is those three sectors—informal trade, financial services, telecom—where there was a major overestimation. In some sense, CSO is now saying we accept our weaknesses in the past; we had overestimated that. There are good reasons given for that. We should see the press note. For example, in the telecommunication sector, they estimated the growth rate by the growth in the number of mobile phone subscribers. Everybody will tell you that this is not the right way to estimate a growth which is going into the GDP. The new estimation is done on the basis of the growth of minutes of data and voice used in the mobile phone sector. This is as close to “value added” as you can get. For instance, lets take the RBI. The UN System of National Accounts tells us that the central bank should not be treated as a market entity but should be treated a non-market activity. Therefore, that data drops out in the estimation of the GDP and GVA. There are a large number of such methodological improvements that have been done. You should go into the details with technically competent individuals.
The biggest difference is in the tertiary sector. With respect to the changes you mentioned in the telecommunication sector in terms of data and minutes, has this been done in the new series in any case so this is consistent over the entire series available?
Yes, absolutely.
In terms of financial services, what has changed? You said the RBI’s contribution has gone out. If you take the financial services’ growth rate and plot them against credit growth over those years, there is some inconsistency. For instance, in 2010-11, financial services showed a 7 percent growth while credit growth was at 25 percent. Some of these indicators don’t seem to be matching with what we have available otherwise.
We have gotten used to comparing the unlikes with completely different figures. The credit growth that we all keep talking about is simply the credit of tapering commercial banks. That is only one part of the credit offtake. The other credit offtake comes from IPOs, NBFCs and urban financial cooperatives etc. We use a segment of the data and start comparing growth in financial services here. The point is, the growth in the financial services takes into account the profitability of the commercial banking sector plus all the NBFC. Plus, as I mentioned, the System of National Accounts 2008 stipulates that you should not use the central bank data since it’s not a market entity. It needs to be deducted in some way and this is what is the level down in financial services if you do that since it is a substantial amount. So, you need to look into the rigour that has been now applied by the CSO in estimating the tertiary sector data and to make it much more in line with what is done globally. You will also appreciate that as a result of that, the share of our tertiary sector in the GDP has now not bloated as before. So everybody will talk about India is a suis generis case with a huge service sector. It has been tempered and I think it is below 50 percent. This is more in line with our level of our per-capita income of industrialisation than what you had in the past.
What are the changes that have come on the manufacturing side in terms of assessing manufacturing activity in this back series? There seems to be some changes there as well.
There are quite a few changes. The first one, as I mentioned, is that they have used the data released by the Ministry of Corporate Affairs which is the balance sheet data and that is a big one. Then, we have used the enterprise approach instead of the establishment approach which is the annual survey of industry basis of doing it. The enterprise approach would mean that in case a company with multiple plants and production facilities, we aggregate them and therefore take PNL data. We have a more modified labour input method. In the use of construction materials, we have now got specific data for the use of basic materials like bitumin and glass and is a much better estimation of the sand that is used. So what you have is a much larger coverage in the secondary sector and a much better handle on the actual value edition in the sector. Because we have used the enterprise sector, a large number of companies that had been left out have now been covered in the new methodology.
Why have we got data halfway through the back-series? We haven’t gotten it all the way back to 1993-94 or 1995, which the Statistical Commission had managed to do. If this was work in progress, why release it until we have the entire series?
You are justified to be dissatisfied but if only you knew how much has gone into doing this, you would appreciate that it is not so easy. The remaining series will come out very soon. You will then see them in the next two-three months when CSO will put it out in the website.
Have you had a word with the Statistical Commission why their chosen methodology had been chosen? They must have had a reason for choosing the method that they did. Dismissing it completely seems a little surprising.
We have not dismissed it.
NITI Aayog put out a official statement saying that this isn’t official data.
That was not official data. That particular committee was also not expected to, neither was this mandate to come up with a back series and they did it in a rather econometric method. The CSO was right in saying that it was not expected. We have not dismissed it but we have put out data which is far superior and the methodology is much more in sync with the international practices.
When was this methodology decided and why is the NITI Aayog involved in this? NITI Aayog is a planning body and there should be a statistical exercise put out by the CSO.
NITI Aayog is no more a planning body. It’s a think-tank and gets into all sorts of things, including checking and insuring the veracity, rigour and credibility of the data. Two round tables were held in NITI Aayog to go over this and to be sure that what we did was right. NITI Aayog and CSO are part of the same government and also very closely related to each other since we do a lot of data work, analysis and evidence-based policy making. I don’t think there is any joy in trying to drive a wedge between us. Finally, we knew that it was not just a technical issue we were getting into and therefore we were advised that it might be better for NITI Aayog to release this data and work together to make sure of quality.
Key takeaways from this perspective and what it tells us about the economy: Economists are saying that it reiterates the fact that we have peaks and troughs but sustaining growth rates near 8 percent seems to be difficult. Is that one key takeaway or do you have other broader, longer term economic takeaways from this data?
My first takeaway is that this myth about India being decoupled from global trends should be jettisoned as soon as possible and the policy in future should take global factors into account much more than what is done. The second takeaway is that we have to try much harder to try and break this ceiling of eight percent and get toward double-digit growth and for that we’ll need to take more advantage of the external demand that we have made so far. Our exports of goods and services must do better than what they have done. The third takeaway is that we need to invest much more on improving our data system when modernising them and making use of the latest technology that you have along with digital technology to make our data much more robust, timely and more amenable to policy making.