India’s GDP Likely Grew 3.5-5.5% During 2011-16, Says Former CEA Subramanian
India's economy is likely to have grown between 3.5 percent and 5.5 percent from 2011 to 2016, instead of the reported average growth of 6.9 percent, according to former Chief Economic Advisor Arvind Subramanian.
“A plausible and conservative estimate that would be consistent with the panel and cross-sectional estimates would be a growth over-estimation between 2011 and 2016 of about 2.5 percent per year,” he said in a report titled India's GDP Mis-estimation: Likelihood, Magnitudes, Mechanisms and Implications. Cumulatively, over five years, the level of GDP might have been overstated by about 9-21 percent.
This finding relates to averages over the 2011-2016 period, which encompasses both the Congress-led United Progressive Alliance and the Bharatiya Janata Party-led National Democratic Alliance governments, the paper said. While official estimates place growth at about 7 percent, actual growth may have been closer to 4.5 percent, with a 95 percent confidence approval, Subramanian wrote.
Subramanian cited evidence, which stated that methodology changes introduced for the post-2011 GDP estimates led to an over-estimation of its growth. He, however, warned that given the nature of the data and “impossibility for researchers to reproduce the detailed methodology underlying the GDP estimates”, the results of the paper are “by no means the final word”.
“That said, the evidence is too broad and robust, the anomalies and puzzles too numerous, the magnitudes of over-estimation too large, and the stakes for the economy and country too high for this evidence not to be debated seriously.”
This isn’t the first time India’s GDP data has been questioned. In March 2019, 108 economists and statisticians put out a note citing specific instances that have caused them to worry about the credibility of Indian statistics, especially the GDP and employment data.
India’s GDP data is key to policymaking. “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...The Indian policy automobile has been navigated with a faulty or even broken speedometer,” Subramanian said. In particular, interest rates may have been too high, by as much as 150 basis points, he added.
Incorrect data may have also affected the urgency of policymakers to act upon the challenges in the banking system, agricultural sector and in case of unemployment, he said, adding that this may influence the impact of the reforms carried out in “serious and perverse ways”.
The findings would explain why India has been witnessing the ongoing stress in its corporate and financial system, weak new project announcements, and persistently low capacity utilisation in manufacturing, the former CEA said, citing the paper.
There has been a sense that all of these weakness were anomalies, existing despite good growth, captured in the popular narrative of “jobless growth”. In reality, all these weaknesses may have partly stemmed from weaker-than-believed growth.Arvind Subramanian, Former Chief Economic Advisor
Subramanian suggests that the government must acknowledge that the growth is weaker than believed and work on improving the data by a revision of the entire methodology and implementation for GDP estimation through an independent task force. This task force should comprise “both national and international experts, with impeccable technical credentials and demonstrable stature”, he said. “And it must include not just statisticians but also macro-economists and policy practitioners.”