Fudging GDP Data Is Hard Work (Even if Not as Hard as Harvard)

Window dressing of GDP figures by the NDA government is intended to impress voters during the assembly elections.

For anyone who understands (or believes he or she understands) the working of an economy, the latest GDP data released by the Modi government should come as a shock. The main takeaway from the data released is that the horrendous exercise of demonetisation did not have any negative impact on the growth rate of the Indian economy.

Did demonetisation even happen? The sudden announcement, the subsequent scrambling for cash, the months-long chaos, the job losses, the massive drops in sales, the shutting down of small businesses and of course hundreds of deaths – was it all real or did we just sleep and have a bad dream? The economists, stat gurus, analysts and brokerage houses seemed to be in cahoots, predicting a decent drop in growth rate and pegging it around 6-6.5 percent.

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Gap Between ‘Advanced’ and ‘Revised’ Estimates

Let us spend a valuable minute on understanding the ‘smart’ math behind this GDP figure. To start with, the GDP figures released are a projection and not an observed fact. What this simply means is, the government ‘thinks’ (after a lot of calculations and projections) that the economy will grow by 7.1 percent in 2017 with respect to the year 2016.

Around a year from now, we will get to know how the economy actually performed and whether these projections were correct or not. These are called ‘advanced estimates’ – determining expectations about the economy and sadly, these attract more attention than the real numbers that come out much later and are called the ‘revised estimates’.

Due to this discrepancy in the attention these numbers receive, there is a smart game that the government can play and it surely did.

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Playing With Figures

GDP growth rate is a relative metric, meaning the present figure relies on the previous one. For example, if the output is 106 units this year and was 100 units the previous year, the growth rate will be calculated as 6 percent, but the same output of 106 units will result in the growth rate of 7.1 percent if the previous year figure was 99 units rather than 100.

If you look minutely at the figures released by the government, they have very subtly decimated the figures of 2016 Q3, which in turn pushed the 2017 GDP growth projections way up to 7.1 percent. This served the BJP in two ways – a year ago when the 2016 GDP figures attracted attention, they were projected to be on the higher side; now the data that is attracting attention is for 2017, which as a result of decimating the old 2016 figures, is sitting high at 7.1 percent.

Simple calculation tells us that if the numbers for 2016 had not been revised down, the 2017 GDP projections would have been around 6.4 percent instead of 7.1 percent and that would not have looked as good on PM Modi’s resume for the UP elections.

Stop Fudging GDP Data

Right from the time the numbers were released, things didn’t seem to add up.

For instance, the IIP data shows that manufacturing output has not grown at all over the last year (0.2 percent), but the government data has projected a 10 percent increase in the nominal output of the same. Another important distinction that needs to be made is that the GDP numbers rely majorly on the organised sector, but the one hit worst by demonetisation is the unorganised sector.

To measure the real impact of his actions, PM Modi will have to travel extensively throughout the nation and reach out to small vendors, stall operators, kirana shop owners and rather than making them listen, he will have to hear their ‘Mann Ki Baat’.

In his election rally in UP, PM Modi proudly said, “Harvard se jyada dum hota hai hard work mein (hard work pays off more than Harvard)”. Yes we agree, this whole exercise of playing with and finding sweet spots in the GDP figures indeed would have taken some hard work, maybe not as hard as getting into Harvard, but surely harder than writing attractive election slogans!

(Jaspreet Oberoi is a PhD scholar, working as a Research Scientist. He writes on politics & economics related to India, Canada & USA. He can be reached @iJasOberoi. This is a personal blog and the views expressed above are the author’s own. The Quint neither endorses nor is responsible for the same.)

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