According to the revised GDP numbers released by the government on Wednesday, India’s economic growth under the previous Congress-led coalition government was slower than estimated earlier and was never in double digits.
The Central statistical office re-calibrated the data to establish a better picture of the economy and thus lowered the GDP growth rates for a majority of the previous 10 years of the UPA regime.
Gross Domestic Product estimates are subject to the prices of base years and these base years are periodically updated to ensure that the series reflects the structural changes that have taken place in the economy and to better capture the economic activity through such macroeconomic aggregates. It has been a practice that once the Central Statistics Office updates the base year it provides back series data for the previous years based on the latest base year prices.
Going by this practice, the NITI Aayog along with CSO released the back series for the GDP and as per this, it has been found that the average growth rate under the four years NDA 2 has been 7.35% which has been higher than the 6.7% of the 10 years of UPA-2.
As evident, this finding has led to severe politicization of the numbers while authors and commentators are yet to review the detailed methodological note that was released with the data. It is important to note that the shift to the new methodology for GDP was considered as a significant improvement over the previous methodology as our new methodology is in line with the global standards.
The fact that the back series come after 2 and a half years and this shows that clearly Ministry of Statistics and Programme Implementation wanted to be careful while it deployed the new methodology while computing the back-series calculations. The previous methodology only took a look at the Annual Survey of Industries data and very few firms are covered under this data set, while the new methodology covers a significantly larger proportion of firms as it uses the Ministry of Corporate Affairs dataset. Thus, the new back series considers a very large number of companies that were ordinarily left behind due to the previous methodology and this has ensured that there is a significant improvement in the estimates that we’re now obtaining as per the new series.
Similarly, another area of improvement has been in the sector-specific price indices being used as deflators. This helps to ascertain the “true” contribution and growth rate of the sector and this improves the computation significantly. It also shows that the tertiary sector does not have a disproportionate share in India’s GDP which debunks the myth that Indian Economy transformed from being agriculturally based to being service based, but it skipped the middle aspect of the “manufacturing” phase.
Under the new methodology, there is an enterprise approach instead of the establishment approach. This means that we look at the enterprise as a whole aggregate unit together, rather than look at different plants of the same firm. This is more in line with global standards. The labour input method has also been modified to reflect the dynamic changes that the global economy has undergone over the last couple of years.
All of these changes have definitely put our series in line with the global standards as we’ve ensured that the methodology tries to adequately reflect the level of economic activity in India. However, political ramifications have already begun as Opposition Parties have questioned the new methodology but they’re yet to point out so as to why they feel that the methodology is not robust. Politicization of the data is definitely incorrect but given that this new data debunks the narrative of “High-Growth” under UPA, it is bound to be severely questioned.
The new back series is indeed reliable as it gives a very accurate picture of the Indian Economy. Most economists have routinely argued that the argument of India “de-coupling” from the global economy is a myth. The new back series clearly validates this argument and it reinforces the extent of the impact that global economic growth has on India. Besides, the dip in 2008 to 3.1% followed by a subsequent increase in growth for two financial years due to the financial slowdown and subsequent slowdown of the economy from 2011 onwards shows how India’s growth has followed the boom-bust-boom phenomena or the “Real Business Cycle” Theory. This phenomenon is in line with a similar finding by many economists who’ve worked extensively on the subject.
Given that the new back series is based on a superior methodology and it paints a very accurate picture (even if in a directional sense) of the growth that India experienced from 2005 onwards, there is no doubt about the authenticity or the credibility of the computations. As a result, it would be wise to accept the data as it is rather than politicization of such an important statistic and a routine government procedure.