The Economic Advisory Council to the Prime Minister (EAC-PM) has released a detailed analysis of India’s new GDP estimation methodology. In it, the Council has defended the technique dubbing it to be at par with global standards. It also offers a point-by-point rebuttal to former Chief Economic Adviser Dr. Arvind Subramanian’s critique of the technique where he had asserted that GDP numbers had been overestimated.
The report says, “India’s GDP estimation methodology stands at par with its global standing as a major and responsible economy. It is of the quality and precision expected from a transparent and well managed economy. The new methodology introduced in 2015 is a testament to India’s intent to adopt the most modern global standards to accurately report its economic data. And India’s direction and pace towards the goal of accurate National Income Accounting is worthy of praise.”
The primary contributors of the report “reject the author’s (Subramanian’s) methodology, arguments and conclusions” in the paper titled ‘India’s GDP Mis-estimation: Likelihood, Magnitudes, Mechanisms, and Implications’. They say that the paper does not specifically critique coverage or methodology and “lacks rigor in terms of specific data sources and description; alternative hypothesis; rationale of equation specifications, use of dummies, and robustness-check diagnostics of estimated equations; and choice of countries in the sample and a specific list”. Therefore, “it would not stand the scrutiny of academic or policy research standards”. It also remarks that the paper is not peer-reviewed.
The EAC analysis says that the former CEA has cherry-picked 17 indicators from a private agency, which is not a primary source of information.
The report notes that “the weakness of Dr. Subramanian’s attempt to suggest that the growth numbers are over-estimated confirms that the estimation process is robust to spurious criticism.” And stresses further, “The fact of the matter is that India’s GDP methodology is consistent with internationally accepted standards and is in a continuous process of improvement.” The statement also notes that Dr. Arvind Subramanian’s paper is not peer-reviewed.
However, the paper does admit that “GDP calculation has always been an imperfect art” and “Irrespective of the methodology, there are always some areas that require extrapolation, estimation and sometimes even guestimates based on past trends”. The primary contributors to the report are Bibek Debroy, Rathin Roy, Surjit Bhalla, Charan Singh and Arvind Virmani.
Reacting to Subramanian’s comments that India’s GDP has been overestimated by the previous governments, the government of India had issued a clarification last week as well.
The full report of the Economic Advisory Council can be accessed here [PDF].
