When India’s Gross Domestic Product growth numbers came in last week for October-December 2019 – what the financial papers would call “Q3-FY‘20” – newspapers seemed confused. One carried the headline that India’s GDP growth had jumped up to 4.7%. Another said India’s economy had slowed down to 4.7%. Which was right?
Some observers put the difference down to expected biases, but for once the confusion may have been understandable.
Here is what happened:
At the start of the day, per the official record, India had grown at 4.5% in the second quarter, from July to September. If, as most economists expected, the figure was 4.7% for the third quarter, then it would have meant the downward slide in growth numbers had ended. 4.7% may be only marginally better than 4.5%, but it is a bigger number.
So when the government announced that the third quarter growth was indeed 4.7%, many thought it was proof that the economy had bottomed out and growth numbers would start moving up.
Except the government also changed the previous quarter’s number, from 4.5% up to 5.1%.
As a result, what was before a jump from 4.5% to 4.7% had suddenly become a drop from 5.1% to 4.7%.
As Ira Dugal put it in BloombergQuint, “what you got was a growth rate in line with consensus forecast but against the consensus narrative that the economy had bottomed out.”
It gets more complicated. The government in fact made huge revisions for its figures for both the first and second quarters of this financial year. Normally revisions are made at the end of the year, not mid-way, but the Central Statistical Organisation gave no explanation for these alterations.
CNBC-TV18’s Latha Venkatesh pointed to some of the massive changes:
“On November 30, the CSO said Q2 exports were at 7.26 lakh crore. But on February 28 it said that Q2 exports were actually at 7.03 lakh crore. Where did the Rs 22,000 crore of exports vanish in three months?
The revisions are much worse when it comes to imports. In the November 30 release, the Q2 imports were put at 8.62 lakh crore. Now on Feb 28 they have been revised down to 7.8 lakh crore — almost 1 lakh crore less of imports. How come the numbers swing so wildly?”
The numbers were so radically different, with such large, confounding revisions, that one news organisation went with the headline: GDP data – what’s even the point?
The point may be 5. As in, 5%. One theory is that government bodies are doing whatever mathematical jugglery needed to ensure that the final GDP growth number for the whole year does not drop below 5%.
Already India is seeing its worst growth in years, but a sub-5% number would be even more damning for Prime Minister Narendra Modi, who first came to power six years ago promising development and growth.
And so, make whatever changes to the data that would be necessary for the final figure to be an acceptable one. That might have once seemed like an outlandish charge. But after the political interference in statistics that has been on display for all to see over the last few years, it does not sound implausible.
As we have argued before, in the long run, fudging numbers helps no one. Some part of running an economy may be a confidence trick, but if no one believes those figures, they no longer help with narrative – and actively make planning harder since policy makers and executives need plausible forecasts.
The constant, unexplained revisions of data run counter to this and should be worrying even if you believe they are not the result of political interference. There is currently a committee working to bring trust back to Indian statistics, as well as a flawed piece of proposed legislation. The hope is that these will restore some confidence, but that assumes the same government that is undermining trust will willingly change course.
If they don’t however, it won’t just be news organisations, but many others including economists and investors asking an expanded version of the same question: India’s economy – what’s even the point?
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