Raghuram Rajan raises doubts about new methods of calculating GDP
The RBI Governor said that growth figures are up because of people moving into different areas of the country.
Reserve Bank of India Governor Raghuram Rajan on Thursday voiced scepticism about the way in which the country’s Gross Domestic Product is calculated, and said that policymakers should be careful when calculating the figure. Rajan said that sometimes growth is due to people moving into new areas, and that it is important that actual value is created in addition to economic growth.
He cited the example of two mothers babysitting each other’s children and paying each other. He said there is a rise in economic activity since they pay the other, but it may not necessarily be an economic gain. “Presumably, kids want their own mother... and the economy would be worse off,” he said when addressing students at the Indira Gandhi Institute of Development Research in Mumbai.
GDP estimates for 2014-2015 projected India’s growth at 7.4%. IANS reported that after changing the base year for calculation from 2011-2012 to 2004-2005, figures for 2013-2014 changed – from 4.7% to 6.9% – and so did those for the earlier year, which went from 5.1% from 4.5%. The numbers are contradictory when compared with other economic indicators. The new method of calculating GDP also placed manufacturing growth at 5.3% in 2013-2014 when it was earlier calculated to be 0.7%.
Finance Minister Arun Jaitley last year welcomed debate on the new GDP series, and said the government had no role in calculating GDP as the statistic office is independent of the Centre. A committee has also been set up to examine the new method, headed by National Statistical Commission chairman Pronab Sen.