Survey rules out fudging of GDP data, misestimation

New Delhi, January 31

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The Economic Survey has debunked former Chief Economic Adviser Arvind Subramaniam’s claim that India’s GDP growth rate has been overstated by about 2.5 per cent due to changes in data sources and methodology for estimation.

The Survey explains away the setting up of the 28-member Standing Committee on Economic Statistics (SCES) headed by India’s former Chief Statistician to improve the quality of data as aimed at ramping up India’s statistical infrastructure.

After examining the evidence, leveraging existing academic literature and econometric methods, it says there is no lack of any concrete evidence in favour of a mis-estimated Indian GDP.

It came to this conclusion using models to study whether India’s GDP growth is higher than it would have been had its estimation methodology not been revised in 2011. “If the evidence of a mis-estimation is credible and robust, a radical upheaval of the estimation methodology should follow,” said the Survey while adding that given the cost of such a massive undertaking, it is important to be certain that there is a need to revisit the estimation methodology.

It found that if the models had incorrectly over-estimated the GDP growth by 2.7 per cent for India post-2011, then they should have also mis-estimated the GDP growth over the same time period for 51 other countries out of 95 countries in the sample. Several advanced economies such as the UK, Germany and Singapore turn out to have their GDPs mis-estimated when the econometric model is incompletely specified, thus hinting that the conclusions of the contrarian economists might be based on an analysis that was not exhaustive.

Interestingly, the Survey hinted at the absence of crony capitalism in India only on the basis of composition of the Sensex over the years. For the first 10 years since the Sensex’s inception in 1986, the firms that constituted the index barely changed; nearly all the firms were retained for the majority of the next decade. — TNS

How the last Survey went wrong

• Decline in investment rate since 2011-12 seems to have bottomed out and may pick up due to higher credit growth and demand
  FACT: Investment growth at 0.97% was the lowest in 15 years
• Political stability should push the animal spirits of the economy
  FACT: Consumer confidence dropped to a six-year low