Former Chief Economic Adviser Arvind Subramanian has said that India’s growth has been overestimated by 2.5% points per year between 2011-’12 and 2016-’17, a period that was led by both United Progressive Alliance and National Democratic Alliance governments.
Subramanian wrote in The Indian Express on Tuesday that official estimates pegged average annual growth during this period at about 7%, whereas actual growth may have been 4.5%, according to his new research paper published at Harvard University.
The government in May announced that India’s growth rate in its Gross Domestic Product had declined to 5.8% in the last quarter of the financial year 2018-’19. This was the slowest pace of growth in 17 quarters. The Ministry of Statistics and Programme Implementation also revised the GDP growth for 2018-’19 downwards to 6.8% from the earlier estimated 7%.
“My new research suggests that post-global financial crisis, the heady narrative of a guns-blazing India – that statisticians led us to believe – may have to cede to a more realistic one of an economy growing solidly but not spectacularly,” he wrote.
Subramanian’s analysis is based on 17 key economic indicators for the period 2001-’02 to 2017-’18 that are typically correlated with Gross Domestic Product growth. However, it does not include the controversial MCA-21 database which forms an integral part of the Central Statistics Office’s calculation. Second, he compared India with other countries. “For a sample of 71 high and middle income countries, I estimate a relationship between a set of indicators and GDP growth for the pre and post-2011 periods.”
Subramanian said that the one sector where “mis-measurement seems particularly severe” was manufacturing. He said before 2011, the manufacturing value added in national accounts were tightly correlated with the manufacturing component of the Index of Industrial Production and manufacturing exports. “But afterward the correlations turn strongly and bizarrely negative,” Subramanian said.
On the implications of the findings, Subramanian wrote that the new evidence implied “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, possibly broken, speedometer,” he said.
Subramanian said inaccurate statistics on the economy “dampen the impetus for reform” and said restoring growth must be the key policy objective. “In reality, weak job growth and acute financial sector stress may have simply stemmed from modest GDP growth.”
Subramanian also called for an independent task force, comprising both national and international experts, statisticians, macro-economists and policy users, to revisit the GDP estimation.
As chief economic adviser, Subramanian said he and his team “grappled with conflicting economic data”. “We raised these doubts frequently within government, and publicly articulated these in a measured manner in government documents, especially the Economic Survey of July 2017.” Subramanian had served as the chief economic adviser from October 2014 to June 2018.