Confusing GDP numbers

Barring some self-laudatory comments of a few politicians, the rest of the world is not convinced of the sudden previously undiscovered growth statistics.

Updated - November 16, 2021 05:09 pm IST

Published - April 20, 2015 02:22 am IST

In January, the Central Statistics Office (CSO) revised its GDP growth estimates scaling them up by some 1.5 percentage points for 2014-15. A high growth rate of 7.4 per cent during last year was arrived at on the basis of new estimates for the first three quarters and projections for the last. This will follow on the 6.9 per cent growth in 2013-1.

Barring some self-laudatory comments of a few politicians — most of them from the UPA Government which wanted to take credit — the rest of the world is not convinced of the sudden previously undiscovered growth statistics. The scepticism has remained notwithstanding some strenuous efforts by senior officers of the CSO to illuminate the new methodology. No less than the RBI Governor and the Chief Economic Adviser, were, according to reports not convinced initially at least.


Lay people are apt to wonder how humongous changes in the ways national income statistics are to be calculated, can be brought about without involving the country’s top economists or at least keeping them in the loop. At an even more basic level, the credibility of the national income statistics has taken a hit. There were some doubts on the previous methodology especially in relation to the unorganised sector, but over the years it has not been accused of lacking consistency. A meaningful comparison of the data with previous years was possible. But in the latest revision, the CSO has not only changed the base year from 2004-05 to 2011-12 — which it was expected to do — but revamped the foundations of the methodology altogether.

The reason why the CSO’s revised estimate for last year has been viewed with such scepticism is that macroeconomic indicators, which measure economic activity on the ground, do not point to any sudden growth acceleration. It is possible to pick holes in many other components of the revised estimates also. Most significant is the fact that according to the revised estimates, the rate of investment or the gross fixed capital formation (GFCF), as a percentage of GDP, has actually fallen over the past few years (33.6 per cent in 2011-12 to 28.6 per cent in 2014-15). These levels of fixed investments are not higher than rates in the older series of national accounts, which has 2004-05 as the base year. The question is: can growth accelerate (as it is shown to have in the new series) even as the rate of investment falls?

In a recent article, Parthasarathi Shome, one of India’s top economists, has compared the methodology used by the CSO to arrive at the new series with the one adopted in the past. There are significant differences. For instance, the new manufacturing GDP includes not only the value of production of a business unit but also the distribution costs (marketing and selling).

With the scope of manufacturing thus considerably expanded, the GDP from manufacturing, mining, and quarrying have gone from negative to significantly positive. But this should have reduced the scope of corresponding services.

When even economists say they remain confused nearly three months after the CSO published its revised GDP numbers, what about the man on the street? The official statistics machinery ought to have done a better job in communicating, its undoubtedly seminal work, which the transition to the new series of national income statistics certainly is. Scepticism over official economic data will grow. It would be perhaps desirable, even necessary, to follow Dr. Shome’s advice and report the old with the new series for five years, if not longer “so that .their underlying differences are transparent on a continuing basis and they are able to serve the needs for research and statistical use.”

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