The National Statistical Office is “covering up the reality” by considering selective data to calculate India’s growth numbers, Princeton economist Ashoka Mody claimed on Wednesday.

If more well-rounded numbers are taken into account, the country’s Gross Domestic Product growth rate for the first quarter (April-June) of the financial year 2023-’24 would come to 4.5% instead of the 7.8% announced by the government, Mody wrote in an article for Project Syndicate.

On Friday, India’s Chief Economic Adviser V Anantha Nageswaran rejected his claims, saying that the government has been consistent in its method for calculating the growth numbers.

“Some commentators remain adamant that they would not let evidence interfere with prior positions,” Nageswaran said in an op-ed article that was co-authored by Senior Economic Advisor Rajiv Mishra in the Mint.

Watch: Ashoka Mody interview: India has betrayed its people. And both Nehru and Modi are to blame

What did Mody flag?

Mody, a visiting professor of economics at Princeton University, contended that the National Statistical Office takes into account only estimates of domestic income and not expenditure to calculate the growth figures. Domestic income refers to the earnings from goods and services produced in the country, while expenditure accounts for what Indians and foreigners pay to buy them.

Ideally, the two numbers should be equal as “producers can earn incomes only when others buy their output”, Mody explained in his article. However, the two numbers differ all over the world because national accounts of countries are based on imperfect data.

“The proper approach is to recognise both income and expenditure as imperfect macroeconomic aggregates, and then to combine them to assess the state of the economy,” Mody wrote.

The economist added that governments in Australia, Germany and the United Kingdom use this method. The US uses expenditure data, but the country’s Bureau of Economic Analysis takes into account the average of expenditure and income as often there emerges a significant difference between the two numbers.

The divergence in the two numbers was stark in India’s first quarter GDP numbers released on August 31, Mody flagged. He said that the income from production increased at an annual rate of 7.8% in the April-June period, while expenditure rose by only 1.4%. The National Stastical Office’s approach to consider only the income numbers “is an obvious violation of international best practice”, he said.

“The NSO is covering up the reality of anemic expenditure at a time when many Indians are hurting, and when foreigners are showing only a limited appetite for Indian goods,” the economist wrote.

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The economic adviser’s rebuttal

In his response to Mody’s claims, Nageswaran said that the “design of data systems in India” makes it easier to make estimates from the income numbers than expenditure.

He added that the government used this method to calculate growth numbers even when the income numbers were not higher than expenditure. The chief economic adviser cited the example of the first quarter of the 2020-’21 financial year when an unprecedented 25% contraction was reported in GDP due to the coronavirus pandemic.

“...There was nary a murmur on the credibility of Indian statistics because it had reported one of the severest contractions in the history of Indian GDP data,” Nageswaran wrote in the Mint. “That data suited naysayers, and hence it was ‘credible’.”

The chief economic adviser also pointed out that since 2011-’12, the discrepancy between India’s income and expenditure numbers have ranged between 6.4% to -4.8%. “The latest quarter discrepancy lies well within that,” he asserted.

However, his rebuttal in the Mint did not address other contentious issues such as inequality, spending capacity and scarcity of jobs flagged by Mody.

Inequality and joblessness

In his article for Project Syndicate, Mody wrote that in the expenditure numbers, the share of imported items has gone up from 22% before coronavirus pandemic to 26%.

“With the help of an overvalued exchange rate, rich Indians are buying fast cars, gilded watches, and designer handbags – often on shopping sprees in Zurich, Milan, and Singapore – while the vast majority struggle to buy necessities,” he explained.

As for lack of employment, he said that first quarter numbers showed the sharpest growth of 12.1% in the finance and real estate sectors that provide “only a handful of jobs for highly qualified Indians”.

He contended that the manufacturing sector, which acts as the primary source of employment for thriving developing economies, has been “particularly weak” in post-Covid India.

“This reflects the country’s chronic inability to compete in international markets for labor-intensive products,” Mody wrote.