Former CEA Arvind Subramanian defends stance on GDP overestimation

Former chief economic advisor Arvind Subramanian on Wednesday defended his argument on GDP overestimation again. “I have used a framework not to estimate but validate demand side from macro side,” he said at an event organised by National Council of Applied Economic Research in New Delhi on Wednesday.

Last month, in a research paper that analysed data on 17 economic indicators in the real sector, Subramanian had said that India’s real gross domestic product (GDP) growth “was more likely to have been between 3.5 per cent and 5.5 per cent” in the 2011-2016 period, rather than 6.9 per cent, as estimated by the National Statistical Office (NSO). He had said that the new GDP series overestimated real GDP growth by 2.5 percentage points.

The government had stood by its numbers and the Economic Advisor Council to the Prime Minister had issued a rebuttal to Subramanian’s stance.

The former CEA said that India had sustained high growth rate after 2011, despite indicators going in the other direction. He said that some major macro-economic shocks after 2011, like a collapse in exports, twin balance sheet crisis, policy paralysis during the Manmohan Singh government’s second term, severe and consecutive agricultural droughts, and demonetisation, lead to key macro engines to stall. 

Giving the example of tax to GDP growth, Subramanian said: “Policy and enforcement changes affect tax and we know for a fact that excise tax went up by 0.8 percentage points of GDP because of policy change. Let’s look at direct taxes. Nominal and real, they collapsed,” he said.

Subramanian also spoke about the cognitive benchmarks that are presumed while disseminating data. “A 4.5 per cent GDP growth would be considered a disaster. India by no means is a disaster. There are three benchmarks that people see. One, how can we be close to the pre-1990s? Two, how can we fall from the boom period. Three, we are way below our potential because people don’t buy into this new normal,” he said.

Meanwhile, former chief statistician Pronab Sen, who was also present at the event, said the Central Statistics Office should take a closer look into its use of corporate data, including MCA-21 data, as there was a greater disconnect between the corporate economy and the informal economy. Sen said the recent unemployment data and reports of downsizing were causes of concern.

“The recent reports mean you are replacing a lot of low-skilled labour with few high-skilled, highly-paid labour. Why would that happen? If the technology being using is going up. There has been a lot of fear mongering in recent years about automation pulling us down. If the manufacturing data from MCA is correct, automation has come… it has been there from the past 7-8 years,” Sen said.

Sen also said that the goods and services tax data could be an effective way of measuring intermediate consumption, i.e., the consumption of commodities by production units. "It may not be a bad way of figuring out what is happening to investment, but as far as consumption is concerned, it can be useful. GST as a measure for B2B transactions is excellent but for B2C transactions, I am not very sure," he said.

Sen also claimed the CSO had been trying to get hold of GST data from the finance ministry for some time now. “The GST guys are not releasing it because they fear they will be subjected to the same kind of vilification that CSO is being subjected to,” he said.