The GDP obfuscation

The new methodology of calculating GDP is more in line with international standards

In February 2015, India’s Central Statistical Office (CSO) revised the methodology for calculating the country’s gross domestic product (GDP). The new methodology is more in line with international standards. At that time, the CSO revised GDP growth estimates for FY12 (financial year 2011-12), FY13, FY14, and FY15. The CSO promised to revise the GDP data for earlier years. From a policy perspective, this is necessary in order to compare current growth with that in the past years. But more than three years later, the CSO has still not provided it. This is unconscionable as it creates credibility problems for the data that the Indian government puts out. The government must explain why it has failed to publish the full GDP growth time series. Countries around the world update their GDP methodologies but, unlike India, many countries have no problem revising past data.

In 2015, the CSO announced two changes. First, the base year for calculating the GDP was revised from FY05 to FY12. This is considered a routine change. The second change was more substantive, involving the methodology. The new methodology incorporated more data on corporate activity. Also, spending patterns of households and the informal economy were captured by more recent surveys. The results were surprising, however. For example, for FY14, the GDP growth shot up from 4.7 per cent (old method) to 6.9 per cent (new method). Similarly, for FY15, growth was revised from a projected 5.5 per cent to 7.4 per cent. This propelled India past China in the global growth league tables. The change was viewed with much scepticism. Raghuram Rajan, who was the governor of the Reserve Bank of India at the time, and Arvind Subramanian, the government’s Chief Economic Adviser, were among the many economists who expressed reservations about the new data. However, what has irked many, including this writer, is that the government shows no sign of publishing data for previous years after applying this new methodology. This is inexcusable.

In 2013, the United States revised its GDP methodology. The Bureau of Economic Analysis (BEA) outlined the changes in a paper and explained the difference between annual and “comprehensive” changes to the National Income and Product Accounts (NIPA). The BEA included research & development (R&D) in final GDP calculations — earlier, R&D was considered an intermediate input — and this necessitated a revision. But the BEA revised the GDP data all the way back to 1929! This should not be surprising. After all, economic policymaking depends on comparing data across years. If the BEA had not revised data for the previous years, GDP growth rates after 2013 would have appeared fundamentally different from those in the past and comparisons would have been meaningless. 

The US is not unique in its ability to revise historic economic data in light of methodological changes necessitated by a changing economic structure. There are many such examples from around the world. In 2016, China’s National Bureau of Statistics (NBS) announced that it, too, would begin including R&D expenditure in its GDP calculation. This resulted in modest upward revision of the GDP for past years. How far back did this revision go? NBS revised its GDP data all the way back to 1952. In 2016, the Turkish Statistical Institute revised the methodology to calculate Turkey’s GDP. The country’s economy received a $140-billion boost, and catapulted its growth to a level higher than India’s. Again, R&D expenditures became part of the GDP calculation. However, as with other countries, Turkey’s GDP revision went all the way back to the 20th century. In 2015, Brazil announced changes to its GDP methodology and promptly provided revised estimates from 2000 to 2011. I could go on but you get the idea. In India’s case, after more than three years, we still don’t have comparable data prior to 2011-12.

There are some, including I, who believe that using the current GDP methodology, the growth during UPA years would likely be stronger. In fact, methodological changes in a number of countries have yielded upward revisions in the GDP. Kenya and Nigeria saw a big increases in their GDP estimates when they changed their methodologies. As an economy’s structure changes, newer items become part of the GDP calculation and it takes time to incorporate these items into national accounts. This results in higher estimates of growth. But, as we move further back in the historical time series, the impact of a methodological change is likely to diminish. Be that as it may, what is more important at this point is that we have a consistent time series of GDP data. It is also clear from the experience of other countries, many of them in the G-20 group, that there appears to be no good reason why the Indian government has not published the GDP back series.

In this context, the Ministry of Statistics and Programme Implementation (MoSPI), of which the CSO is a part, has said that the “back series of the gross domestic product (GDP) based on new base year of 2011-12 will be finalised and released after due consultations with an expert committee”. After all these years, still being in the committee mode is astonishing. This delay and obfuscation lends credence to theories about the government’s lack of interest in publishing data that may very well show much higher growth under the UPA. In an election year in which the ruling party is facing unexpected challenges, perhaps the last thing the government wants to do is to set the record straight. After all, we live in an era of fake news. This too shall pass.

The author, formerly with the World Bank, is a member of the Indian National Congress. Views expressed are personal.