GDP Growth Rate – The
Great Indian Debate
Much like the Panchtantra parable of “Elephant and the blind
men” this debate is dominated by ‘smell & feel” of the Indian
Economy.
Arvind Subramanian, the former Chief Economic Advisor had
stated in 2015, that the new GDP series with the base year 2011-12 did not
‘smell and feel” right. So did many other learned men and women. Most other “data’ about the level and economic
activity and outcomes were out of whack, they “felt”.
Arvind retired to the academia in Sept 2018, and had time to
work on this ‘irritant’ He worked with the ‘volume” of production of 17
products and services in India; conflated them to arrive a ‘trend line’. He
diligently confirmed his hypotheses using data from 70 other countries. He was
then happy to reconfirm that Indian New GDP Series did not “Smell
& Feel” right.
Nothing, that is new here.
His paper published by Harvard University, actually stated
that “India’s actual GDP growth rates may have been about
4.5% only with a 95% confidence interval of 3.5 - 5.5%, during the years
2011-2017 (the New back-series)”.
But he made an explosive (incendiary) statement that the GDP
likely ambled along at an elephant like @4.5% and not sprinted at tigerish
@7.5% as claimed by GoI. Arvind’s is a credible voice, being the erstwhile CEA,
and divergence from official positions is large enough for the GoI ‘warriors’
to come out guns blazing.
4.5% was picked up by the TV studios and many swords were
unsheathed.
The Chronology of the GDP Controversy
Nov 15- March 2016:
GDP Growth data was released after
changing the Base Year to 2011-12 (earlier 2004-05) and with improvements in
methodology. The back series issued to ensure fair comparison showed that GDP
growth in the UPA years better than NDA years.
P. Chidambaram gloated that “the 10 years of the UPA
government recorded the highest decadal growth since Independence” and “… It
should put an end, once and for all time, to the misconceived charge that the
UPA government had mismanaged the economy.”
Now that commentary does not gel with the “Congress Mukt”
narrative being built so strenuously by NDA.
April 2017 –
Sudipto Mundle Committee was set up to improve the “Real Sector Statistics and
databases”. The Report was published by MoSPI in August 2018. Back series from 1994-95 was now reported using
another set of databases (with 2011-12 the current base year).
This report reconfirmed that the average growth under the
two UPA terms turning out higher than that under NDA-1. The government, promptly
to disowned the data by stating that the Mundle methodology was ‘experimental’
and not yet ‘finalised’. And the Report vanished
from the MoSPI site.
July 2018 : MoSPI
announced change of Base Year yet again to 2017-18.
Jan 2019: MoSPI raised the GDP estimate for Fiscal 2017
– to 8.2% without giving out or presenting any credible methodology. As usual
it was assumed that the Informal Manufacturing Sector,(which was severely
battered by DeMo tsunami), grew at the
same rate as the formal sectors !
There was peace at last, as NDA and Modinomics has won! Just
before the general elections.
But now Arvind Subramanian has gone and stirred the
hornets’ nest again.
The Politics of GDP
While Consumers and Producers make most of the decisions
that mold the economy, the Government activities have a powerful effect on
Economy –“the playing field”- mainly thru Fiscal and monetary policies.
Politics is inherent to policy-making. It is natural that
every dispensation will “tom-tom” the superiority of its policies: much like
“my daddy is greatest”. And the politicians do spin data in a positive light or
manipulate it such that everything appears rosy.
A few Remarks
GDP Measures, devised by Nobel Laureate Simon Kutznets as a
measure of “economic progress” is past its “sell by” date, as the structure of
economies the world over has changed beyond recognition since 1940’s.
Arun Shourie made a
very telling distinction between India and Bharat, when he said that the DeMo
and its attendant “formalization” delights Bombay and Delhi but the lights have
dimmed in Ludhiana, Moradabad and Tirupur.
Increasingly our Governance systems and structures, Centre
and States have strayed from their primary tasks: 1). Security of Life and
Property, 2). Capacity building for Education and Health, 3). Physical
infrastructure and lastly, 4) Creating a “level playing field” for all economic
and social (actors) entities.
Is the GoI in danger of becoming a “ruler” that runs a ‘protection
racket” as Yuval Noah Harari characterized “most rulers in history”?
