India’s economic data: reliable statistics or curated artefacts?

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India’s economic data: reliable statistics or curated artefacts?

It is easier to correct discrepancies in data than to restore the credibility of the statistical system

Source: https://www.livemint.com/opinion/columns/india-s-economic-data-reliable-statistics-or-curated-artefacts-1560444690637.html

Why in news?

  • Arvind Subramanian, former Chief Economic Adviser, has deduced that India’s economic growth rate has been overestimated by around 2.5 percentage points between 2011-12 and 2016-17 due to a change in methodology for calculating GDP.

Background

  • In his paper ‘India’s GDP Mis-estimation: Likelihood, Magnitudes, Mechanisms and Implications’ (Harvard University), he has argued that the change in methodology (switch to 2011-12 as base year and a switch from volume-based to value-based estimates in manufacturing) began during the term of the former.
  • Intuitively, a change of base year alone can change only the level of GDP but not the growth rates.
  • The new methodology, in Subramanian’s view, has led to an overestimation of growth rates between 2011 and 2017 by about 2 ½ percentage points per year in the post-2011 period.
    • That is, instead of the reported average growth of 6.9 per cent between 2011 and 2016, actual growth was more likely to have been between 3 ½ and 5 ½ per cent.
    • Cumulatively, over five years, the level of GDP might have been overstated by about 9-21 per cent.
    • The paper is dismissive of the high growth rates during 2016 and 2017 “when the adverse impacts of demonetisation and GST were greatest”.
  • The crux of his argument is that recent GDP growth is not reflected in the performance of physical indicators such as vehicle sales, freight traffic, commodity consumption, credit growth, exports, imports and investment.
    • Unless there is a spurt in productivity, a flat trend in input growth cannot explain high output growth — notwithstanding the effects of the digital revolution.

New GDP data

  • Like most government statistics, doubts have been raised on the growth rates of gross domestic product (GDP) from the Central Statistics Office (CSO) following the new series of GDP estimates released by the National Democratic Alliance (NDA) in 2015.
  • So far, the government’s response has been an outright denial of any problem with the new methodology of GDP estimation.
  • In the absence of raw data, it is hard for private researchers to raise questions on the credibility of official statistics.
  • The recently released report of the National Sample Survey Office (NSSO) on unorganized enterprises has confirmed the doubts on suitability of MCA-21 data for estimating GDP.
    • MCA-21 is a key database that forms the basis of GDP estimation in the new series.
    • But as the NSSO report showed, there are a number of non-existent entities, along with misclassified enterprises, which raise suspicions on their reliability.

Health of economy

  • GDP data is only one among many databases that are good and strong proxies for the health of the economy.
  • Demonetization: The fact that demonetization led to some deceleration in the overall economy, driven by the informal sector, does not require any proof from the national accounts.
  • Jobless growth: Similarly, the fact that the economy has been going through a period of jobless growth with lack of jobs being an important issue does not require any data on growth rates.
  • Rural distress: So is the case of the worst phase of the agrarian crisis, which was out with thousands of farmers marching on the street.
    • The fact that all of these were a result of severe demand deflation, particularly in the rural economy, did not require time series data on GDP.

The issue

  • The problem of estimating GDP growth rates is not just a technical issue.
    • While a new committee may be set up to examine these issues and may suggest a different measure, to assume that it is some kind of technical deviation is naïve.
  • GDP data: The GDP data is part of a long list of important statistical variables that have been interfered with by the political establishment.
  • Employment statistics: The employment data has finally been released, but not without attacks from the highest government officials on the credibility of the data itself.
    • The fact that the committee tasked to review the report has allowed the report to be released without any changes is testament to the strength of the statistical system, and also confirms the role of the government in fiddling with important statistical data.
  • The same is true of the GDP data.
    • Otherwise, what explains the undue interference of the NITI Aayog in recalculation and publication of the back series of GDP estimates when the official series was published by the National Statistical Commission?

Way forward

  • The challenge for the statistical system is not just to produce credible and robust national accounts estimates, but also to insulate itself from the political system.
  • Given the recent evidence of political interference in crucial statistical indicators of the Indian economy, it is easier to correct the discrepancies in the statistical data than to restore the credibility of the statistical system.

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