Is India’s GDP Growth for Real or the Result of Fudged Data?

Is the CSO really overstating India’s GDP data or are detractors of the method looking at the wrong parameters?

A lot has been said about India’s new method of GDP computing – introduced by India’s Chief Statistician TCS Anant. Those who dispute this method, call it a ‘statistical illusion’. They point out that unless something has changed dramatically in recent years in how companies and consumers behave, the economy is more likely to be expanding at 5 percent, not the 7.6 percent claimed by the government in the Jan-March quarter.

Abheek Burman, the consulting editor of The Economic Times belongs to this camp. Burman argues that far from being an improvement in the GDP calculation method, the new approach is “a crazy statistical fudge, a delight for emperors in need of clothes”. Why? He argues that there has been a decline in several indicators but an unexplained rise in some. His claim however, has been rubbished by member of NITI Aayog, Bibek Debroy, in an article in The Indian Express.

Debroy says there are consistent arguments to this GDP puzzle – explanations that suggest that the CSO has got it right.

On the Subject of Discrepancy

The bulk of growth has apparently materialised from Rs 140,000 crore – try wrapping your mind around that number – of ‘discrepancies’ in our balance sheets. To remind you, this number was less than Rs 30,000 crore a year ago. TCA has conjured up a more than four-fold jump in ‘discrepancies’ and padded it to the GDP number.

Abheek Burman

An impression has also been conveyed that this fourth quarter is special because of the discrepancies, but they have always existed. Discrepancies in current prices were Rs 139,540 crore in the Q4 of 2011-12 and Rs 130,419 crore in Q4 of 2012-13...it’s best to express discrepancies as percentage of GDP, since nominal figures are involved. For Q4 of 2015-16, that high current price figure converts to 4.7 percent of GDP; in quick estimates in Q4 of 2012-13, the share was 6.2 per cent and in revised estimates in Q4 of 2013-14, the share was 5.9 percent. This is hardly a case of 2015-16 being an outlier.

Bibek Debroy

Debroy also argues that the large discrepancies also stem from the fact that our “expenditure numbers are bad”. He adds that discrepancies are just a ‘residual category’.

Has Private Consumption Grown?

Private consumption is also supposed to have grown – by an astronomical Rs 127,000 crore in one year. I do not know a single person whose consumption has recently rocketed up. 

Abheek Burman

Notice that just because I have been unable to explain how some income was spent, that income doesn’t vanish into thin air...There is no dispute about those goods and services (their value) having been produced.

Bibek Debroy

GDP vs Other Economic Indicators

Burman quotes a range of other data to argue that the GDP number is at stark variance with other economic indicators which seem to be on a downward trajectory - particularly investment, corporate valuations, employment data and the rising bad loans in the banking sector.

The most frightening is a Rs 17,000 crore-plus drop in investment, which reflects a lack of confidence in Modi’s India. 

Abheek Burman

Why has the valuation of Flipkart, the largest e-commerce firm, been knocked down several times by investors? This company cannot hire on campus because its pockets are empty. Its peers aren’t doing any better. All state-owned banks are drowning in red: Bank of India lost more than Rs 6,000 crore in a year, tiny Canara Bank is nearly Rs 4,000 crore in the red. Our largest bank, state-owned SBI, saw profits sliding 66%.

While Debroy doesn’t dispute these numbers directly, he makes two key points.

1. He says that the high level of discrepancies also arise as commentators work with current and not constant prices – data based on the former are automatically higher.

...if I am going to spin a tale about cooked up figures, I should use the current price numbers. Apart from everything else, current price figures are higher than constant (2011-12 prices) ones.

Bibek Debroy

2. He also says that once we have full year numbers, we shouldn’t bother about quarterly GDP numbers because they are not robust. Debroy claims that the quarterly numbers are relied on only for the purpose of optics.