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Are GDP Numbers Really A Hoax?

Is it 7.9 per cent? Or is it 3.9 per cent? Or a figure in between the two? Ever since the Central Statistical Organisation released GDP estimates for the fourth quarter ending March 2016, there has been an unseemly debate over the credibility of the numbers

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Is it 7.9 per cent? Or is it 3.9 per cent? Or a figure in between the two? Ever since the Central Statistical Organisation released GDP estimates for the fourth quarter ending March 2016, there has been an unseemly debate over the credibility of the numbers.

Virtually every economist, analyst and pundit, including Surjit Bhalla, Paranjoy Guha Thakurta (now editorial head of the respected Left leaning Economic & Political Weekly), Bibek Debroy of Niti Ayog, Arvind Virmani, Meghnad Desai and Swaminathan Ankleshwara Aiyer, among others, have jumped on the bandwagon.

One group insists that the GDP numbers are both reliable and credible while admitting that official data collection processes in India do leave a lot to be desired. The other group is adamant that the government under PM Modi is fudging numbers to “spin” a feel good story.

For the record, the GDP growth rate estimated for 2015-16 by the CSO is 7.6 per cent, the highest among major economies of the world.

One part of the controversy has to do with the manner in which Modi effortlessly attracts controversies and criticism. Some call it the Modi Derangement Syndrome (where every act of Modi and his regime is viewed with deep suspicion and dislike) while critics think that it is crucial for Indian democracy to have critical voices on board.

How Modi attracts controversy was made painfully clear in the aftermath of the horrific tragedy at Orlando in the US where 50 gay people were shot dead in a gay dance bar. While the world mourned the tragedy, Modi too sent out a usual tweet expressing shock and grief at the tragedy. Suddenly, Modi critics slammed him for not doing enough to abolish the anti-gay laws in India that labels homosexual acts a criminal offense.

A little bit of this was evident even in the course of the GDP controversy. Columnist Abheek Burman wrote a signed piece for The Economic Times arguing why he doesn’t believe the GDP numbers to be credible. The column generated a furore because Burman took potshots of a personal nature against India’s chief statistician T. C. A Anant. Many like Debroy expressed their disgust at the nature of personal attacks against Anant. A predecessor of Anant, former chief statistician Pronab Sen wrote a scathing column in The Economic Times defending the estimates and questioning the motives of Burman. He wrote: “Burman seems to harbor a deep visceral dislike towards Chief Statistician of India T.C.A. Anant, which ranges from his appearance to his pedagogy to his personal hygiene. All this is par for the course for social media trolls. But to accuse Anant of fudging data to please his boss Arun Jaitley or his boss’ boss Narendra Modi takes it beyond mere personalities to an assault on the integrity of an institution”.

But what exactly is the controversy? The roots lie in two factors. First, we have a new system of measuring national income. Shorn of jargon, the new method relies on a far larger sample than the earlier method which has led to these discrepancies in national income data. The second is purely statistical. India estimates GDP numbers based on two sets of data: production and expenditure. The latter is derived from same surveys while the former is derived from actual numbers reported. There has always been a discrepancy between the two. The “gap” seems wider now as production figures now include the tens of thousands of small and medium enterprises that were earlier largely excluded from the calculation process.

For those who understand economics, a third element has added more confusion. GDP estimates are of two types: at current prices and at constant prices. The second estimate is believed to be more accurate as it provides GDP numbers after factoring in inflation. Till 2014, GDP at constant prices was calculated using wholesale prices as the deflator. Since 2014, it is retail or consumer prices that is used as the deflator.

Coincidentally, a number of changes in the method of estimating GDP coincided with the Modi regime taking charge at the Centre. That apart, critics of the estimates point out three reasons for their disbelief: rural distress, very slow growth in bank credit and hardly any growth in private sector investments. Supporters of GDP estimates point out that consumption and the services sector have driven growth in recent times. Who do you believe? Depends on two things: your ideology and your respect for numbers!

Meanwhile, one thing has been missed in this GDP debate. For almost two decades since the mid-1990s, a large number of analysts used to insist that China was cooking up GDP numbers and kept pointing out large discrepancies. Policymakers in China largely ignored the analysts till it was clear even to an elementary student of economics that China had actually replaced Japan as the second largest economy in the world!