‘Trajectory of India’s growth not visible’

There has been a huge debate around India’s GDP numbers and their accuracy. In an e-mail interview, Derek Scissors , resident scholar at public policy think tank The American Enterprise Institute, discusses the issues around the GDP numbers. Mr. Scissors, who closely studies Indian and Chinese economies, says revised older data needs to be published to ensure the credibility of the current method. Edited excerpts:

There is a huge debate on India’s GDP numbers. What, according to you, is the issue?

The public debate is fuelled most by one thing: bad GDP numbers have never been announced by the Modi government. They assumed office, changed the methodology, reported growth that was immediately much higher and, now outperforms expectations for demonetisation. The only disappointing reports are later revisions which get much less attention. There are plenty of problems in India’s economy according to all information except Modi government’s GDP statement.

How does it affect credibility?

When you never acknowledge bad news, after a time, no one will pay attention to your good news. The public can’t determine what policies are truly working and what are not. Eventually, they just stop listening to the government on economic issues altogether.

Do you think the data captures impact of demonetisation?

Even if demonetisation had a relatively small effect, the direction of movement of several key indicators does not make sense for October-December.

What should the government do to make the GDP data more reliable?

In my opinion, by far the most important step to make the current GDP method credible is to publish older data going back before 2010. The Modi government promised to publish the revised older data in 2015, then again in 2016, and has failed completely. All its claims about internationally accepted practices and the like are undermined by this failure. If you still can’t measure the past, how can you claim to be accurately measuring what just happened?

What are the major flaws you see in the current GDP series? How does it impact perception of foreign investors?

The main flaw is we cannot see the actual trajectory for India. We have a few years of GDP but no sense if they are a real improvement because we don’t have previous years’. The new method changed 2013-2014 calculations a great deal, did it change 2003-04 as well?

How did India actually perform at the height of the global financial crisis? We don’t know these and many other things. Foreign media care about GDP but serious foreign investors largely do not. They care about the economic performance of the state or states in which they want to locate business and about the policies of those states. National GDP is too general and vague to matter when money is on the line.

Are there any international best practices which India could look at?

One thing that might help is moving to quarter-on-quarter growth, rather than year-on-year. It takes away the incentive for governments to talk about being the fastest-growing economy, Such boasts just encourage exaggeration and short-sighted policy.

You have also said economic growth should be measured by personal or household income than GDP. Why so?

GDP is just an accounting tool, with no meaning. Try to spend your GDP per capita — it doesn’t exist. What matters economically in a person’s life is how much money they or their families have.

We can measure that. We can measure income net of personal or household debt and see if ordinary people are becoming better off on a sustainable basis.

GDP is used by governments all over the world to say they are doing a fine job, but what matters is how people are doing.

Who cares if India boasts the fastest GDP growth, unless that means the actual lives of its people are improving fastest. We should be measuring from the bottom up, not top down.

When you never acknowledge bad news, after a time, no one will pay attention to your good news

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