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Princeton professor Ashoka Mody uses his opinion on GDP calculation mythology to claim that India’s growth story is fake: Read details

The claim by Ashoka Mody that the GDP number is fake is a completely false and baseless allegation. It is only his opinion that India should change the way the GDP is calculated, and does not show any manipulation in numbers, as suggested by using the word ‘fake growth’.

India’s GDP growth rate for the first quarter of the current fiscal (2023-24) rose to 7.8%, up from 6.1% growth in the previous quarter. While this is a solid indicator of the Indian growth story, left-liberals like always are trying to discredit the number released by the National Statistical Office under the Union Ministry of Statistics and Programme Implementation.

While most of the previous GDP growth numbers released during the Narendra Modi government have been criticised by opposition and left-liberals calling the methodology faulty, this time Princeton University’s visiting professor Ashoka Mody has gone ahead and called it fake, in an article titled “India’s Fake Growth Story” published on Prohect-Syndicate.

Ashoka Mody claims that the GDP number is just a “branding and beautification” exercise ahead of the G20 Summit in Delhi, and there is no growth in the Indian economy despite encouraging GDP numbers. He called the GDP numbers faulty because of ‘discrepancies’ between income and expenditure numbers and argued that an average of both should be used instead of using only income, which is the practice followed by NSO.

Ashok Mody claims that if the discrepancy number used to match expenditure with income is removed, the GDP growth rate for the period April-June in 2023 will be just 1.4%, not 7.8%. He wrote that this is not correct practice, and cites the example of Australia, Germany and the UK which adjust their GDP based on both numbers and the US which uses only expenditure numbers.

Before going ahead with showing how Ashok Mody’s argument is not correct, let’s see how he arrived at the figure of a 1.4% growth rate.

For this, he used the “Quarterly Estimates of Expenditure Components of GDP for Q1 (April-June) 2023-24” table in the NSO report, which contains the discrepancy number, which is basically the difference between income and expenditure for that period. It shows that the GDP change under expenditure is 7.8%, the same as the change in the Gross Value Added (income) table.

As we can see, the expenditure table has a discrepancy row, and a note below the table says that it is the gap between GDP (Production/Income Approach) and GDP (Expenditure Approach).

Now, the discrepancy was negative in the first quarters of 2021-22 and 2022-23, but it is positive in 2023-24. This means expenditure was more than income in the previous two April-June quarters, but this year it was less than income.

Ashok Mody has taken the actual total of the expenditures of last year and this year, arriving at a 1.4% change in the expenditure table. The reason for this massive drop is the fact that last year’s discrepancy was negative and this year it is positive, therefore the number was bigger for last year but smaller for this year. But, Mody chooses to omit that if this method is to be adopted, the growth rate for April-June 2022 will be 14.8%, more than the reported 13.1%.

The calculation committing the discrepancy number is given below.

Therefore, what he has calculated is correct, but the issue is, he is presenting it as proof that the govt is using the wrong method to calculate GDP numbers.

But the fact is that the Modi government has not started using this method, this is the method India using for a long time. There is no change in the method, as suggested by Ashoka Mody. Moreover, as already seen in just 3 year’s data, numbers can fluctuate both ways when the expenditure is not adjusted to match income, in some years it can be more than the calculated GDP under income and in other years it can be less.

Therefore, if the expenditure number, or an average of both income and expenditure is taken, it will have to be done for previous years too to present an even picture of the economy over the years. In some years the number will dip while in others it will go up.

Therefore, the claim that the GDP number is fake is a completely false and baseless allegation. It is only his opinion that India should change the way the GDP is calculated, and does not show any manipulation in numbers, as suggested by using the word ‘fake growth’.

The claim that the use of the discrepancy number is covering up something is also wrong and baseless. It does not hide anything, as Ashoka Mody proved himself by calculating the GDP change rate for the net expenditure numbers.

The discrepancy number is used because India calculates GDP using two approaches, income approach and expenditure approach. But often both the numbers don’t match, and therefore it is used to match expenditure with income. It is notable that although NSO collects a massive amount of data, they are never 100% accurate, and based on estimates. As a result, there is always some difference between income and expenditure numbers, and the difference is transparently shown in GDP reports.

There can be a valid debate on the use of this method, and suggestions can be made to change the method to use average instead of pushing the expenditure number up or down to match the income. But this in no way means any manipulations in the numbers as suggested by Mody. The same method has been used by NSO in earlier reports. Ashoka Mody has been completely dishonest by suggesting that there is something wrong with the reported number and that India’s growth story is fake.

He claims Indian authorities are using the 7.8% figure to parade seemingly flattering images and headline figures ahead of the G20 summit. The fact again remains that the Indian govt has used the same method used earlier, and there is no change. Moreover, if his suggestion is accepted, while this year’s GDP number will go down, it will go up for the previous years when expenditure was more than income. Therefore, the claim that the govt is using discrepancy to boost the GDP number is completely wrong.

Coming to the use of methods used by other countries like the method by U.S. Bureau of Economic Analysis (BEA), this is purely a policy decision, and not using a particular methodology cannot mean that the current method is wrong. India is not the only country to use the income approach to calculate Gross Domestic Product, a large number of other countries also do the same.

This was not the only article by Ashoka Mody calling India’s economic growth fake, he has written a number of articles making similar claims on the platform. Some headlines of his other articles are “India’s Boom Is a Dangerous Myth”, “Unlike China, India Cannot Be an Economic Superpower”, “India’s Broken State”, “India’s Law-of-the-Jungle Raj” etc. All these are recently published articles and indicate that the author is working with a clear agenda, to defame India on a global platform.

Project Syndicate and George Soros

Having dealt with the arguments made by the author, it also important to have a look at the platform where the article was published, the Project Syndicate. Its About page says that “Project Syndicate produces and delivers original, high-quality commentaries to a global audience”. According to it, it has received fundings from several organisations, including several left-liberal groups.

The most prominent among them is Open Society Foundation of George Soros, who has launched a mission to remove nationalist governments all over the world. It is also supported by Bill & Melinda Gates Foundation, European Climate Foundation and many others.

In fact, George Soros is also listed as an author on the portal, who has penned several articles for it. Congress leader Shashi Tharoor and Congress supporter Kaushik Basu are also contributors to Project Syndicate. Another Indian contributor is Brahma Chellane, Professor of Strategic Studies at the New Delhi-based Center for Policy Research and Fellow at the Robert Bosch Academy in Berlin.

Ayodhra Ram Mandir special coverage by OpIndia

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Raju Das
Raju Das
Corporate Dropout, Freelance Translator

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