The Prime Minister’s Economic Advisory Council (PMEAC) on Wednesday came out with an eight-point rebuttal to the former Chief Economic Advisor Arvind Subramanian’s claims on growth estimates.

Subramanian had said that GDP growth was overestimated by 2.5 per cent.

The PMEAC note, authored by Bibek Debroy (Chairman, PMEAC), Rathin Roy (Member, PMEAC), Surjit Bhalla (Economist), Charan Singh (Economist) and Arvind Virmani (Ex-CEA) rejected Subramanian’s methodology, arguments and conclusions in the paper ‘India’s GDP Mis-estimation: Likelihood, Magnitudes, Mechanisms, and Implications’ .

“A critique of official GDP estimates must specifically critique coverage or methodology, the author does neither. The author mentions that the motivation of his paper is not political and is focused on technical aspects,” the note said. Subramanian had said that the growth estimate between 2011-12 and 2016-17 was overestimated. He claimed GDP growth rate during this period should be about 4.5 per cent instead of the official estimate of close to 7 per cent. This was first denied by the government and then also by PMEAC but in a brief manner.

“India changed its data sources and methodology for estimating real GDP for the period since 2011-12. This paper shows that the change has led to a significant overestimation of growth,” Subramanian had said while adding that various evidence suggests that the methodology changes introduced for the post-2011 GDP estimates led to an over-estimation of GDP growth.

Lacks rigour

The PMEAC note said given the fact that his paper lacks rigour in terms of specific data sources and description, alternative hypothesis, rationale of equation specifications, use of dummies, and robustness-check diagnostics of estimated equations, and choice of countries in the sample and a specific list, it would not stand the scrutiny of academic or policy research standards.

As the author occupied a high seat of Indian economic planning for nearly four years, it is worth assuming that he is familiar with different data sources in the country, including private and public; and their availability and quality; and hence these are not discussed in detail in the following sections.

The note has point-to-point rebuttal on eight counts. First, it said that Subramanian’s paper is not peer-reviewed. Probably, in due course of time, many experts will weigh in on the dependability of techniques used, veracity and fullness of data used, and the interpretation of various aspects of national income accounting that does not fall in the ‘black or white’ category. “This certainly does not mean that the paper should not be taken seriously, but to believe it as gospel truth is equally problematic,” the note said.

Secondly, it felt that ‘high-frequency indicators are cherry picked.’ It explained that Subramanian used 17 indicators to express his scepticism about the growth rates post 2011-12. Majority of the 17 indicators have been taken directly from Centre for Monitoring Indian Economy (CMIE), a private agency that is not a primary source of information but collects it from different sources. Thirdly, data are right but conclusions are wrong. Fourthly, there were alternate explanations to a mismatch between high-frequency indicators and GDP growth. Fifthly, the paper was an unusual econometric exercise with unworthy results.

The sixth point is that there was institutional bias against the CSO (Central Statistical Organisation). Seventh, there were misplaced hypothesis, methodology and analysis. Finally, the note, while talking about manufacturing preposition, mentioned a fact that IIP (Index of Industrial Production) like any other indicator is not the most precise indicator of Industrial growth. To improve IIP, a new series was introduced when the base year was revised to 2011-12. The 2011-12 series for manufacturing sector contains a total of 809 items as against 620 items in the 2004-05 series. In the new series, 149 items were added while 124 items were removed from the old series. The other change was the weight of manufacturing sector in IIP, that was increased to 77.6 per cent from 75.5 per cent.

comment COMMENT NOW