HYDERABAD: India’s former chief statistician Dr Pronab Sen Tuesday dismissed latest research that showed overestimation of India’s GDP data, saying that it studies only one aspect of growth (volume) and not the other two aspects, namely productivity and quality.
The paper, authored by former chief economic adviser Dr Arvind Subramanian and published by the Center for International Development at Harvard University, said that between 2011 and 2017, India grew at 4.5 per cent, instead of the celebrated 7 per cent.
“In his paper, he says that of the 7 per cent growth in 2012, only 4.5 per cent comes from volume and 2.5 per cent comes from either quality or productivity. I’d agree with him on this, but not his interpretation. Because volume explains only 4.5 per cent, he says the GDP is overestimated. He hasn’t proven that (overestimation) at all, because he’s missing out on two other drivers of growth,” Sen told TNIE.
Sen was the country’s first chief statistician, appointed in 2007.
Stating that GDP grows due to various reasons including volume, value and quality, he said, “For instance, 1 kilo of low-quality rice has a value of Rs 15, but high-quality Basmati may be Rs 300. If you look at the volume growth, it’s one kilo for both, but quality of the product acts as an important driver of GDP. What Arvind has done is he used what are essentially called volume indicators, but the problem in is, it doesn’t account for productivity as well as quality improvement.”
Most countries, particularly, developing countries, use a volume-based approach to measure GDP, while value-approach, which India recently adopted, is used mainly by developed countries.
“By and large value-based approach is considered better,” Sen said.
Subramanian, in his latest research, suggests that the heady narrative of a guns-blazing India must cede to a more realistic one, of an economy growing solidly but not spectacularly.
“First, a variety of evidence — within India and across countries — suggests that India’s GDP growth has been overstated by about 2.5 per cent 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 3.5 and 5.5 per cent. Cumulatively, over five years, the level of GDP might have been overstated by about 9-21 per cent,” he noted.
The paper comes at a time when policymakers are grappling with a slowing economy amid weak private investment and consumer spending, besides concerns of an ensuing crisis within NBFCs as well as the effect of the ongoing global trade war.
Subramanian also makes a case for the entire national income accounts estimation to be revisited, besides pursuing an expenditure-based GDP estimation based on GST data.
Dismissing the contentions, the government on Tuesday said it has followed accepted procedures and methodologies for arriving at projections of national income, and the GDP growth projections brought out by various agencies are broadly in line with the estimates released by Ministry of Statistics and Programme Implementation (MoSPI).
“The GDP estimates released by the ministry are based on accepted procedures, methodologies and available data and objectively measure the contribution of various sectors in the economy,” MoSPI said.