Pronab Sen, country director, International Growth Centre, a research unit of the London School of Economics and India’s first Chief Statistician speaks to Sunitha Natti.
Do you subscribe to the school of thought that GDP doesn’t truly reckon the real incomes and prosperity of people?
I don’t think any economist believes that GDP truly reckons the real incomes and prosperity of people.
However, as far as the quality aspect is concerned, it is captured if higher quality is reflected in higher prices. In the case of new goods, higher quality has been associated with declining prices (think of electronics and many white goods). In such cases, the GDP underestimates real incomes.
Do you think services data is captured in full scale?
Services are captured in GDP, but not as well as we would like, mainly because a very large part of services is in the informal sector which is difficult to measure on an annual basis.
Is there a need to move to any other metric that can gauge the ground reality as to how people’s lives are getting better or worse?
Factually, GDP measurement came into existence as an aftermath of the Great Depression. It has been used variously since then. GDP is a measure of total income and not of production. Production is measured by what is called Gross Value of Output (GVO), which is also reported in the National Accounts (in India the GVO is slightly more than double the GDP).
I do not believe that the GDP can be dispensed with since we do need to know what is the total income being generated in the country. GDP is not supposed to measure how income is distributed. It cannot, therefore, by itself, indicate whether inequality or poverty is reducing or not. This is done through household surveys, and is reported separately by NSSO.
As for India, do you think the composition of GDP data is well-thought out or needs an upgrade involving more service activities?
In India we try to follow the UN System of National Accounts as closely as possible given the limitation of the data. Almost all services are included, although perhaps not to the extent of detail that we would have liked. Improvement of GDP estimates is an on-going process as new goods and services keep coming into existence.
What other data points need to be captured or what do you propose to make growth data accurate, reliable and robust?
The biggest weakness of our GDP is in the estimation of the contribution of the informal sector which accounts for roughly 45 per cent of GDP. Since these informal enterprises do not maintain books of account, their contribution can only be measured through surveys. This has two problems: (a) surveys are extremely expensive and time-consuming and cannot be conducted frequently; and (b) since the responses are based on memory and not on accounts, their reliability is suspect. But there is little we can do until more of the economy gets formalised.