‘Ex-CEA’s paper does not consider key indicators’

‘Agri-, services-related metrics ignored’

June 18, 2019 09:55 pm | Updated 10:41 pm IST - NEW DELHI

Arvind Subramanian.

Arvind Subramanian.

Former Chief Economic Advisor Arvind Subramanian’s analysis of economic growth is incorrect as it ignores the indicators related to the bulk of economic activity, such as those measuring the agriculture, services, and informal sectors, A. Vaidyanathan, former Planning Commission Member, has said in an interview.

Mr. Subramanian had recently written a paper for the Harvard University in which he had said that India’s GDP growth during 2011-17 had been over-estimated. Where the official numbers showed that the economy grew at an average of 7% during the period, Mr. Subramanian said the more accurate number was more likely about 4.5%.

“From what I can understand, Mr. Subramanian is saying that he thinks there is some doubt about the accuracy of the GDP growth estimates,” Mr. Vaidyanathan said. “And that he was devising a procedure to verify whether this bias exists or not on the basis of the relationship between certain selected proxy variables and the official estimates.”

The first question to be asked is what the relationship between these proxy variables and the overall growth rate is, Mr. Vaidyanathan said.

“There is no explanation about any of this,” he added. “He (Mr. Subramanian) takes about 17 variables and relates all of these to the entire GDP estimate, not to any particular sector.” I am saying that this is a totally incorrect procedure.”

Industrial output

“You could say, perhaps, that the variable used is important for industrial output,” Mr. Vaidyanathan explained. “But even that is not at all clear to me. What does loan disbursal or electricity generation tell you about the GDP growth, even in manufacturing? That is itself problematic.”

He further says that the variables used by Mr. Subramanian had nothing to do with the agriculture, services or informal sectors.

“Therefore, the inference that this proves over-estimation is totally off-base,” Mr. Vaidyanathan said. “I am surprised that the media and the economic policy establishment is discussing it seriously as something that requires a special commission to be set up. You don’t judge these arguments on the basis of the weight of someone’s office but on the basis of the argument itself.”

He went on to explain that the trends for each of the three major sectors — agriculture, manufacturing and services — show that growth dropped off about seven years ago and that there is no indication of an over-estimation in any of the sectoral growth numbers.

“None of these trends suggests any over-estimation,” Mr. Vaidyanathan said. “If anything, people will say you are under-stating growth.”

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