Former CEA Trims GDP Estimate Between 2011-12 & 2016 -17 to 4.5%
The former CEA trimmed GDP growth to around 4.5%, even as official estimates pegged the average growth at around 7%.
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Amid controversy over the country's economic growth under the new GDP series, former Chief Economic Adviser Arvind Subramanian said India's growth had been overestimated by around 2.5 percentage points, between 2011-12 and 2016-17, reported The Indian Express.
In a recent research paper published at Harvard University, the former CEA trimmed the GDP growth to around 4.5 percent, even as the official estimates pegged average annual growth at around 7 percent during this period.
WHY IT MATTERS
Underlining the implications of the findings in his research paper, Subramanian said that the growth estimates matter not just for reputational reasons, but also critically, for internal policy-making. Inaccurate statistics dampen the impetus for reform and restoring growth must be the key policy objective, the former CEA said.
IN DETAIL
Subramanian's analysis is based on 17 key economic indicators which tend to be highly correlated with GDP growth. However, it does not include the controversial MCA-21 database which forms an integral part of the Central Statistics Office’s calculation.
The former CEA also compared India with other countries. “For a sample of 71 high and middle income countries, I estimate a relationship between a set of indicators and GDP growth for the pre and post-2011 periods,” he wrote.
THE BIG PICTURE
Subramanian said that one sector where the magnitude of mismeasurement is particularly large is manufacturing. Pre-2011, manufacturing value added in national accounts tended to be tightly correlated with the manufacturing component of the index of industrial production and manufacturing exports. But, thereafter, the relationship has broken down, the former CEA underlined.
BETWEEN THE LINES
Talking about the controversies surrounding the BJP due to the GDP, Subramanian noted that the methodological changes, which did not originate from the politicians, must be distinguished from these recent controversies. He put the onus on the substantive work done by technocrats, largely under the UPA-2 regime.
"Moreover, the effort was desirable, both to expand the data for GDP estimation and to move to a methodology more suited for a technologically advancing, dynamic economy,"he wrote, according to The Indian Express.
THE WAY FORWARD
The former CEA also called for an independent task force, comprising both national and international experts, statisticians, macro-economists and policy users, to revisit the GDP estimation.
Subramanian pointed out that some criticism is bound to surface around his role on the issue while he was the CEA. “We raised these doubts frequently within government, and publicly articulated these in a measured manner in government documents, especially the Economic Survey of July 2017," he clarified, adding that he and his team "grappled with conflicting economic data."
FLASHBACK
Arvind Subramanian quit his position as chief economic advisor to the Centre a year before his term ended in June last year, citing “personal reasons”.
Subramanian had also launched a scathing attack on Modi’s demonetisation decision from a safe distance after quitting his job.
Months after quitting the job, Subramanian came out with the book Of Counsel: The Challenges of the Modi-Jaitley Economy, in which he called demonetisation a draconian move.
Subramanian is the third Indian academic-economist to return to the US after leaving the government during PM Modi’s term. In August last year, Arvind Panagariya, professor of economics at Columbia University, quit as the head of NITI Aayog before completing his term.
In 2016, Raghuram Rajan had decided to leave after his three-year term ended as RBI governor.
(With inputs from The Indian Express.)
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