Friday, February 26, 2021

Growth figures

The recent statement of the former Chief Economic Advisor (CEA) Dr Arvind Subramanian disputing figures on the Gross Domestic Product (GDP) growth rate in the previous years particularly during the United Progressive Alliance (UPA) and the National Democratic Alliance (NDA) regimes appears to have become a point of debate by the political parties. The successive governments, of course, are to be held accountable for the slowdown in the GDP growth rate particularly during the past almost more than four years under the BJP-led government. Though the figures and data released by the Central Statistics Office (CSO) on the growth rate are a regular exercise yet the growth rates are to be taken into account on comparative studies. The causes for the slowdown and devaluation of the Indian currency in the international market need to be debated and discussed in a democratic setup for maintaining transparency in the working of the government. The current figures based on the latest base year are a subject matter which the governments are supposed to release within the fixed time frame. This is done mainly to enable precise comparison and analysis, it is a difficult exercise prone to contestation as it includes newer data sources, exclusion of the outdated ones and making some subjective assumptions in the process. Given the political element, the release of comparative figures has become a controversial exercise for the government when they are based on the base years of 2005-2006 to 2011-12, the new base year. The data computed by the CSO and released by the Niti Aayog show that India never really grew in double-digits in 2010-11, nor was it the high-growth economy in the five years preceding this as earlier perceived to be. It happens that this period covers the two terms of the Congress-led UPA- government, and the new data have predictably set off a political storm. The Congress may feel aggrieved as its biggest achievement, of taking India on the high GDP growth path, has come under question. During earlier instances, particularly the previous decade, of backcasting of GDP data, the political environment was not as deeply polarised as it is now, and so the exercise remained more academic. Now the danger in the political slugfest is that the many valuable insights that can be gleaned from the data will be lost sight of. The biggest danger is that India never really decoupled from the global economy during the years of the financial crisis (2008-10), unlike what was earlier believed. This is also to be borne in mind that Indian economy cannot remain aloof from the global economic slowdown despite the fact the claims to the contrary have been made by the BJP-government. It is worth noting that the new back series data show a much lower growth rate compared to the previous one or the current one. This is an important learning process for policymakers. They can only then move forward and take into account the contemporary economic situation. Any criticism of the data has to take into account the fact that it has been generated by a thoroughly professional organisation, the CSO, and the methods have been scrutinised by experts, including past chief statisticians, and the Advisory Committee on National Accounts Statistics. Certainly, the data of the back series by the Niti Aayog goes against convention and is bad in optics. But this should not be reason to contest the integrity of the Niti Aayog. The method of computation of figures reflects the latest United Nations System of National Accounts; it also captures changes in the economy since the financial year 2004-05. The data sources have also been updated over the last many years. Experts had testified to the robustness of the method when it was introduced in 2015, even while underlining that the availability of reliable data was crucial to arrive at the correct overall picture. There is no doubt that India needs to invest more in data collection and integration and do informal sector surveys frequently for improving the feedback on the economic health of the country. This mainly for the reason that updated data are, in fact, insurance against politicians hijacking what is essentially an economic exercise.