“The (revised GDP) numbers are the result of a hatchet job” tweeted former Finance Minister P Chidambaram after the Modi government published the back-series GDP data late November. Ahmed Patel, his colleague in the Congress party, added his bit: ‘In its desperate attempt to re-write GDP data, the government resembles a student who cannot pass an exam without cheating.’
These comments could well be dismissed as a rant by Congressmen in response to the revised numbers that lowered the average GDP growth during UPA rule from 7.75 per cent to 6.82 per cent which, to their bewilderment, is lower than the 7.35 per cent growth averaged during the Modi government.
But the issue appears to be more than just politics. Researchers at Reserve Bank of India have also pointed out that the multiple revision of GDP growth estimates are ‘confusing’ and does not reveal the ‘true state of the economy’.
They were proved right when the government, late in January, revised the growth data for the years 2015-16, 2016-17 and 2017-18.
This raised more questions as the revision saw growth during 2016-17 (the demonetisation year) jumping to 8.2 per cent from the earlier 7.2 per cent, making it the fastest growth rate under the new series.
Around the same time came reports of the government trying to suppress the National Sample Survey Organisation (NSSO) report on unemployment. The report, which was eventually leaked to the media, showed unemployment at a 45-year high of 6.1 per cent in 2017-18 as against 2.2 per cent in 2011-12.
Suddenly, Indian economic data, traditionally considered good and robust, is now being eyed with suspicion. Many have begun to fear whether the data has become a political tool in the hands of the government.
It all began when the present government, in January 2015, unveiled GDP data with 2011-12 as the new base year (from the earlier base year of 2004-05).
A base year is periodically revised to reflect the changes in the economy and capture growth better. But when a base year is changed, the GDP data for earlier years is also recast to aid better comparison and forecasts.
For some reason, the government presented the back-series only for 2011-12 to 2013-14. It was assumed that the data was not ready then. The back-series finally came after almost four long years (and that too only up to 2004-05) in November 2018, lowering the growth during UPA years. It did not go unnoticed that the data came just months before the Lok Sabha elections.
Changes in base year and adoption of new methodology in the past have raised concerns and representatives from the Central Statistics Office (CSO) have taken pains to explain their approach and the variation in data. They never got this big. What appears to have made matters worse this time is that the government opted for NITI Aayog to give the explanation rather than getting the Chief Statistician, as in the past, to do the job.
So is the government fudging data? Unlikely. To do so, the government will have to involve hundreds of people. Considering the fractured polity of today, it will be too big a risk to attempt. The suspicion over the data arises from the fact that the revised growth numbers are not in sync with other sources of data — now or during the UPA period.
The 10-year UPA period is considered to be a period of strong growth and this is backed by other parameters too, such as growth in corporate earnings, extent of private investment (it peaked at 35.57 per cent of GDP in 2007-08) and strong flow of bank credit.
Though the global financial crisis did moderate that growth a bit, to say the average UPA period growth is lower than that of the present government will certainly raise an eyebrow or two. In the last five years corporate earnings have declined, private investments crashed, farm distress surfaced, bank credit flow has moderated, jobs have vanished, and bad debts have shot up.
That the numbers don’t add up could well be due to change in the methodology. The new series gives greater emphasis on value addition. This could explain why we are witnessing ‘jobless growth’. Were there huge cash purchases during the demonetisation period that bumped up the growth during that period? Why is the core inflation rising when there is a rural distress? Experts have questioned the efficacy of the deflators that have been used to arrive at constant prices. Is that the cause for the variation?
Time for answers
There are answers to all these questions and the government needs to provide them. The CSO should come out and clarify the disconnect in the various economic data and that is the only way to restore credibility of the data.
This is important not just for investors to take a call but also for the government to frame policy. If the data is not accurate, it will not present a realistic state of the economy and that could lead to policy mistakes. Also, easing and tightening monetary policy becomes arbitrary. In the long run growth will be affected. The new methodology should, therefore, be explained and subjected to expert scrutiny rather than kept opaque.
All these come at a time when the government should be investing heavily to widen the breadth of data that is available in the country. India is set to become the fifth largest economy in the world but it lacks proper data be it on jobs or retail sales.
The government’s focus should be on correcting this situation rather than giving an impression that it is interfering with the data.