In an effort to put to rest all speculation over the accuracy and reliability of India’s GDP data, India’s Chief Economic Advisor (CEA) Krishnamurthy Subramanian on Friday asserted that there is “no evidence” of mis-estimation of growth of the Indian economy.
The debates on the issue were kicked off last year after Mr. Subramanian’s predecessor, Arvind Subramanian — in a research paper published by Harvard University last year — had said India’s GDP growth in the period 2011-12 to 2016-17 is likely to have been over-estimated. The former CEA had argued that GDP growth during that period was actually 4.5% rather than the 7% presented by the official data.
“Concerns of a mis-estimated Indian GDP are unsubstantiated by the data and are thus unfounded,” the CEA said in the Economic Survey 2020, in which an entire chapter has been dedicated to the issue.
The Survey noted that since investors deciding to invest in an economy care for the country’s GDP growth, uncertainty about its magnitude can affect investment. “...It is important that GDP is measured as accurately as possible. Recently, there has been much debate and discussion among scholars, policymakers and citizens alike on whether India’s GDP is estimated correctly.”
“...the chapter carefully examines the evidence, leveraging existing scholarly literature and econometric methods to study whether India’s GDP growth is higher than it would have been had its estimation methodology not been revised in 2011. Using a cross-country, generalized difference-in-difference model with fixed effects, the analysis demonstrates the lack of any concrete evidence in favour of a mis-estimated Indian GDP,” the Survey said.
It added that the models that incorrectly over-estimate GDP growth by 2.7% for India post-2011 also mis-estimate GDP growth over the same time period for 51 other countries, out of 95 countries in the sample. Several advanced economies such as U.K., Germany and Singapore turn out to have their GDPs mis-estimated when the econometric model is incompletely specified, the Survey claimed.
Further, it added that correctly specified models that account for all unobserved differences among countries as well as differential trends in GDP growth across countries, fail to find any mis-estimation of growth in India or other countries.
The Economic Survey also added that since 10% increase in new firm creation increases district-level GDP growth by 1.8%, and the pace of new firm creation in the formal sector accelerated significantly after 2014, the resultant impact on district-level growth and country level growth, must be accounted for in any analysis.
It, however, added that, “The need to invest in ramping up India’s statistical infrastructure is undoubted,” and in that context, a 28-member Standing Committee on Economic Statistics (SCES), headed by India’s former Chief Statistician, is important.