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NEW DELHI: Arvind Subramanian, former leader financial marketing consultant, has deduced that India's financial enlargement rate has been hyped up through around 2.5 proportion points between 2011-12 and 2016-17 due to a transformation in technique for calculating GDP.

India's gross home product product (GDP) enlargement rate between this period must be about 4.5 per cent instead of the official estimate of with regards to 7 per cent, he stated in a analysis paper revealed at Harvard University.


"India changed its data sources and methodology for estimating real gross domestic product (GDP) for the period since 2011-12. This paper shows that this change has led to a significant overestimation of growth," he stated within the paper.

Controversy over GDP knowledge defined

In June 2015, MOSPI (ministry of statistics and programme implementation) unveiled the new collection of nationwide accounts with the 2011-12 base yr and in addition inducted a brand new technique and data assets. In 2004-05 collection, the personal company sector used to be being covered through the usage of RBI find out about on company price range.


The paper comes amidst controversy over the rustic's financial enlargement below the new GDP collection. The revision within the technique happened right through the primary time period of the Modi govt.

"Official estimates place annual average GDP growth between 2011-12 and 2016-17 at about 7 per cent. We estimate that actual growth may have been about 4.5 per cent with a 95 per cent confidence interval of 3.5 - 5.5 per cent," he stated.

Manufacturing is one such sector where the calculations have been in large part mismeasured, wrote Subramanian, who quit as the manager financial marketing consultant in August remaining yr prior to his extended tenure used to be to end in May 2019.

He stated the implication of that is: "Macro-economic policy too tight. Impetus for reform possibly dented. Going forward, restoring growth must be highest priority, including to finance government's laudable inclusion agenda. GDP estimation must be revisited."

Last month, official knowledge confirmed that financial enlargement slowed right down to a five-year low of five.eight per cent in January-March, pushing India in the back of China, due to deficient appearing through agriculture and production sectors.

"So, post-global financial crisis, growth in India, solid not stellar," he tweeted with a link to his analysis paper. "My paper focuses on original, technical methodological changes which are distinct from more recent GDP controversies such as "back-casting" and puzzling upward revisions for latest years."

He stated the evidence, in keeping with disaggregated knowledge from India and cross-sectional/panel regressions, is robust.

GDP enlargement falls to 5.eight% in January-March quarter, falls beneath China

India's GDP (gross dometic product) enlargement for the January-March (This fall) quarter slowed to 5.eight per cent from 6.6 per cent within the earlier (October-December) quarter, govt knowledge confirmed on Friday. This is the slowest GDP enlargement rate in five years, as a chill in home and international client demand hit manufacturers and service providers.


"Lending further credence to the evidence, part of the overestimation can be related to a key methodological change, which affected the measurement of the formal manufacturing sector. These findings alter our understanding of India's growth performance after the global financial crisis, from spectacular to solid," he wrote within the paper.

According to Subramanian, two essential coverage implications follow: "the entire national income accounts estimation should be revisited, harnessing new opportunities created by the goods and services tax to significantly improve it; and restoring growth should be the urgent priority for the new government."

The BJP govt had in January 2015 up to date base yr for GDP calculation to 2011-12, replacing the previous collection base yr of 2004-05. Using this, in August remaining yr the growth numbers had been recalibrated through the Sudipto Mundle Committee set up through the National Statistical Commission. This dumped up enlargement right through the Congress-led UPA years in keeping with the so-called production-shift way.

The govt, then again, dumped this calling the numbers experimental and not actual. It in November 2018 "recalibrated" the financial system for the years 2004-05 to 2011-12, knocking down the GDP enlargement in UPA-era.

In the length prior to 2011, production value added within the nationwide accounts was closely correlated with the producing component of the Index of Industrial Production (IIP) and production exports. However, according to Subramanian, this link has broken down.

He stated his analysis used to be based upon 17 key financial indicators for the length 2001-02 to 2017-18 with the next interdependence with the GDP enlargement.

"The Indian policy automobile has been navigated with a faulty, possibly broken, speedometer," he says within the paper.

In a chain of tweets, he supplied evidence to his principle.

"Evidence 1. Growth correlations between 17 simple, macro-ish, & "independently produced" indicators and GDP break down post-2011. Pre-2011, 16 positively correlated with GDP; post-2011, 11 negatively correlated," he stated.




Growth of all these "macro-ish" indicators declines sharply post-2011 in comparison to pre-2011, but measured GDP enlargement remained widely equivalent, he stated bringing up it as evidence No. 2.


"Evidence 3. In cross-country regressions, India has a normal relationship b/w growth in standard indicators and GDP pre-2011, but post-2011 it is an outlier (growth much greater than predicted by relationship). This finding--normal pre-2011, but outlier post-2011--is robust," he stated.


"Evidence 4. Methodological changes affected the formal manufacturing sector in particular possibly because of issues related to deflators. Pre-2011, formal manufacturing moved normally with other indicators of manufacturing-index of production, exports-but perversely post-2011," he added.

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