Does Arvind Subramanian Believe India’s GDP And Fiscal Deficit Data?
India’s new gross domestic product data series raises a lot of questions, and demands an explanation, said former Chief Economic Adviser Arvind Subramanian.
“If you look at other indicators in the earlier period and during this period, you see a big differential and yet the growth numbers are the same,” Subramanian said in an interaction with BloombergQuint at the Delhi launch of his new book ‘Of Counsel: The Challenges of the Modi-Jaitley Economy’.
GDP series is a very technical subject and only technical experts should opine on it, he added. Asked to comment on NITI Aayog’s assertion that the think tank had the necessary technical expertise to create GDP back-series, Subramanian said that it was “an excessive claim”.
Speaking on the fiscal deficit, Subramanian said there’s a need to be a “little less obsessed with these targets” and instead push for an independent fiscal council.
Subramanian also added the revenue collection targets for the goods and services tax, outlined in the budget, were “unreasonable”.
Let’s talk about the GDP data. We’re a data-starved country. And now we have four series. We have one new current series and three versions of the old series. Which one do you believe? There is an old series that the CSO put up, that Indian Express wrote about a couple of days ago; that was apparently rejected by the government because it showed the UPA growth rate higher than it was even earlier, so the data had to be reworked. There was a National Statistical Commission old series that was rejected. Then there’s one that the NITI Aayog has put up, an old series which apparently is the relevant series. Which series do you believe?
I just don’t know enough about the methodology to speak about it. I will say one thing very important. As an economist, this new series that’s been created, I have to be frank and say, that it raises a lot of questions. When you look at other indicators in that period and compare, you see a big differential and yet the growth numbers are the same. It demands explanation and rationalisation. I cannot provide that as I don’t know enough.
This is a very technical subject and we should only have technical experts opining. It has become not just a matter of credibility of the series but also of the data-generating process and institutions in India.
To convince ourselves and the world that we are a nation that produces reliable numbers, this matter should be handed over to experts and have an expert technical view and not associated with any institutions who do not have the technical expertise in this issue.
But they all say they’re technical. The NITI Aayog says they have the technical expertise...
That’s an excessive claim, I think.
You’ve answered my question, of the three, you rely on the first two, maybe. You’ve said that GST collections target, which accounts for 50-60 percent of the tax collection in the country, might be too aggressive. GDP growth, we’ve discussed. There’s an interesting commentary in your book on process integrity with respect to fiscal deficit. Financial journalists have been grappling with LIC bailing out IDBI Bank and then ONGC buying HPCL and more recently PFC buying REC and all these incestuous activities in the PSU space. Then there’s talk of NSSF funds being used to fund Air India. Should we believe the fiscal deficit number at all?
I think it’s a very good question. I think that this is another case where the numbers should not just be right, but also should be seen to be right. With the deficit, all governments have flexibility, because you know, you have deficit targets, but if you finance it (Air India) by the NSSF, it shows up in the debt but not the deficit. The deficit math is very complicated, and I think, very opaque and non-transparent.
That’s part of the reason why I say in the book that instead of pointing fingers, we should become less obsessed with numbers on deficit targets because, like in education, when you say you’ll do things according to the test scores, then all your teaching is directed at the test rather than providing real education. I think all governments do have to calibrate their policies and maybe a little bit of the accounting to meet the target.
We should have something like an independent fiscal council that many countries do as the FRBM committee recommended and it was one of the recommendations that I was fully supportive of.
I think we should have that. We do have the CAG but it comes much later. I think we need to know the numbers in real time. That’s what they do in the U.K., the CBO does it in the U.S.
So let’s have that and become a little less obsessed with these targets because at the end of the day we have to be sure that something meaningful is done on the policy front and that’s not always easy to infer from the outcome.
GST will take two-three years to settle in. But what I’m concerned about is GST revenue and the compliance rates. We’re still below 70 percent and the numbers don’t add up the government’s targets for this fiscal year.
All this compliance that’s not happening, I think we need to follow up on that. I hope it’s something that the technology will allow us to do, that I don’t know much about. I think, absolutely we must do that.
But on the revenue, there’s an important point that I’d like to make, that to judge the GST with the budget demands is unreasonable, because frankly, the budget has made unreasonable demands from GST. It’s asked for 16-17 percent. What you should ask the GST is: If the economy is growing at 11-12 percent, are GST revenues giving you 12-13 percent or not. And please don’t forget that some of the rates were slashed quite a bit, so you have to take that into account. You have to factor that into account as well. You have to measure it relative to how much is the economy growing, what did we do to tax rates, and combine the two to see do we get enough or not.
And my early calculation, at least when I left six months ago, was it was doing surprisingly well on the revenue front. It could change, I’m not saying that it could continue but we need to monitor it but apply the right benchmark to it and not the budget demand for it.