EAC-PM releases a detailed analysis on robustness of India’s GDP estimation methodology

New Delhi: The Economic Advisory Council to the Prime Minister today released a detailed notetitled ‘GDP estimation in India- Perspectives and Facts’. The note can be accessed at http://eacpm.gov.in/reports-papers/eac-reports-papers/.

The note provides a clear rationale for India’s switch to an improved GDP estimation methodology in January 2015. The new methodology that uses 2011-12 as the base year includes two major improvements, a) Incorporation of MCA21 database, and b) Incorporation of the Recommendations of System of National Accounts (SNA), 2008. This change was in line with other countries that have changed their methodologies in line with SNA 2008 and revised their respective GDP figures. On an average, real GDP estimates saw an increase of 0.7% among OECD countries.

As mentioned in EAC-PM’s press release dated 12 June 2019, the note also provides a point-to-point rebuttal to a recently published paper titled ‘India’s GDP Mis-estimation: Likelihood, Magnitudes, Mechanisms, and Implications’ by Dr.Arvind Subramanian. The primary contributors to the note, namely BibekDebroy, Rathin Roy, Surjit Bhalla, Charan Singh and Arvind Virmani reject Dr. Subramanian’smethodology, arguments and conclusions on the basis of academic merit and grasp of Indian realities. The note provides detailed evidence that indicates that Dr. Subramanian has cherry-picked a few indicators and performed a rather unconvincing regression analysis to prove his hypothesis that India’s GDP was over-estimated post 2011-12. For instance, the note highlights the absurdity in Dr. Subramanian’s paper that selectively ignores tax data based on the argument that the period post 2011-12 witnessed “major changes in direct and indirect taxes”. Interestingly, Mr. Subramanian’s analysis ends on 31st March 2017, while the only major tax change (GST) was introduced on 1st July 2017. In totality, the note highlights eight clear points with supportive facts and arguments that debunk Dr. Subramanian’s paper in entirety.

The note concludes with the point that India’s GDP estimation methodology is by no means a perfect exercise and the Ministry of Statistics and Program Implementation is working on multiple aspects to improve the accuracy of economic data. However, the direction and pace of improvement is commendable and as of today India’s GDP estimation methodology is at par with its global standing as a responsible, transparent and well-managed economy. If anything, the weakness of Dr.Subramaniam’s attempt to suggest that the growth numbers are over-estimated confirms that the estimation process is robust to spurious criticism. Going forward, Indian National Income Accounting is bound to change for good and an important step in accomplishing that will involve criticism from experts and academics.But the country’s interests are not served by imparting sensationalism through negativity that questions the credibility of the system.