Home Economy and Finance GDP calculation system revised in line with international standards: govt clarifies Arvind Subramanian’s allegations of overstating growth numbers

GDP calculation system revised in line with international standards: govt clarifies Arvind Subramanian’s allegations of overstating growth numbers

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.

Reacting to the comments made by former chief economic advisor Arvind Subramanian that India’s GDP has been overestimated by the previous governments, the government of India has issued a clarification.

Earlier today, media had quoted Subramanian’s latest research paper saying that instead of reported growth rate of 6.9% from 2011 to 2016, the actual growth rate was more likely between 3.5% and 5.5%. “A variety of evidence—within India and across countries—suggests that India’s GDP growth has been over-stated by about 2.5 percentage points per year in the post-2011 period, with a 95 per cent confidence band of 1 percentage point,” the research paper said. Arvind Subramanian wrote that “Indian policy automobile has been navigated with a faulty, possibly broken, speedometer.”

The Ministry of Statistics & Programme Implementation has issued a clarification to the comments made by the former CEA. The government says that the latest version of the international statistical standard for the national accounts was used to arrive at the growth numbers for the country. The System of National Accounts 2008 (2008 SNA) was adopted by the United Nations Statistical Commission (UNSC) in 2009, which is an update of the 1993 version.

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The statement also adds that with changes taking place in the economy, it is necessary to revise the base year of macroeconomic indicators like GDP time to time to ensure that they remain relevant and reflect the true state of the economy.

The full statement issued by the ministry is given below:

Reports have appeared in a section of media citing Dr Arvind Subramanian as regards overestimation of India’s GDP growth, primarily based on an analysis of indicators, like electricity consumption, two-wheeler sales, commercial vehicle sales etc using an econometric model and associated assumptions. 

The  Ministry of Statistics and Program Implementation has released details from time to time to explain the complexities involved in GDP compilation. The estimation of GDP in any economy is a complex exercise where several measures and metrics are evolved to better measure the performance of the economy. For the purpose of global standardization and comparability, countries follow the System of National Accounts evolved in the UN after elaborate consultation. The System of National Accounts 2008 (2008 SNA) is the latest version of the international statistical standard for the national accounts, adopted by the United Nations Statistical Commission (UNSC) in 2009 and is an update of the earlier 1993 SNA. The Inter-Secretariat Working Group on National Accounts (ISWGNA) was mandated to develop the 2008 SNA through intense discussions and consultation with member countries. India also participated in the deliberations of the Advisory Expert Group. In its adoption of the 2008 SNA the UNSC encouraged Member States, regional and sub-regional organizations to implement its recommendations and use it for the national and international reporting of national accounts statistics based on the available data sources.  

As with any international standard, the data requirements are immense and diverse economies like India take time to evolve the relevant data sources before they can be fully aligned with the SNA requirements. In absence of data, alternate proxy sources or statistical surveys are used to estimate the contribution of various sectors to the GDP/GVA. The SNA also prescribes that the base year of the estimates may be revised at periodic intervals so that changes in the economic environment, advances in methodological research and the needs of users are appropriately captured. 

With structural changes taking place in the economy, it is necessary to revise the base year of macroeconomic indicators like Gross Domestic Product (GDP), Index of Industrial Production (IIP), Consumer Price Index (CPI) etc, periodically to ensure that indicators remain relevant and reflect the structural changes more realistically. Such revisions not only use latest data from censuses and surveys, they also incorporate information from administrative data that have become more robust over time.  In India, the Base Year of the GDP Series was revised from 2004-05 to 2011-12 and released on 30 January, 2015 after adaptation of the sources and methods in line with the SNA 2008. The methodology of compilation of macro aggregates has been discussed in detail by the Advisory Committee on National Accounts Statistics (ACNAS) comprising experts from academia, National Statistical Commission, Indian Statistical Institute (ISI), Reserve Bank of India (RBI), Ministries of Finance, Corporate Affairs, Agriculture, NITI Aayog and selected State Governments. It may be noted that decisions taken by these Committees are unanimous and collective after taking into consideration the data availability and methodological aspects before recommending the most appropriate approach. 

In addition, India has subscribed to the Special Data Dissemination Standard (SDDS) of the International Monetary Fund (IMF) and an Advance Release Calendar is decided for release of estimates. The IMF had raised certain issues on the usage of double deflation in the Indian GDP series and India had informed IMF that the existing data availability does not permit its application in India at present.  In fact, some media reports, while citing the changes in GDP growth likely to result from adopting the double deflation, acknowledges the varying outcomes obtained by different authors under their own distinct assumptions. In view of these divergent views, the Advisory Committee on National Accounts Statistics (ACNAS) had not agreed to adoption of double deflation at this stage. Moreover, double deflation is used in only a few countries that have a Producers Price Index (PPI) to deflate the inputs. 

According to the World Bank, the accuracy of national accounts estimates and their comparability across countries depend on timely revisions to data on GDP and its components. The frequency of revisions to GDP data across countries varies between monthly, quarterly, annually or even less frequently. The International Monetary Fund (IMF), through its technical missions also reviews the implementation of recommendations of SNA and provides necessary technical support. Further, under Article IV of IMF, a Mission, interacts annually with officials of Ministry of Statistics and Program Implementation, Reserve Bank of India and Ministry of Finance on issues relating to economic development and policies. The detailed methodology for compilation of the GDP, including the Back Series is available on the website of the Ministry. It may also be noted that the National Accounts Division, which compiles these macro aggregates and other National Accounts Statistics is also ISO (International Organisation for Standards) 9001:2015 certified for its quality management of procedures and processes.

With any Base Revision, as new and more regular data sources become available, it is important to note that a comparison of the old and new series are not amenable to simplistic macro-econometric modelling. It may also be seen that the GDP growth projections brought out by various national and international agencies are broadly in line with the estimates released by 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.

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