New growth narrative

| Updated on November 29, 2018 Published on November 29, 2018

The official ‘back series’, with FY12 as base year raises some concerns

It’s official, at least for now: the updated GDP series, released jointly by NITI Aayog and the CSO and based on 2011-12 as the base year, tells us that average growth during the UPA years was 6.8 per cent, whereas the Modi government has fared better with 7.35 per cent growth in its four years. With 2004-05 as base year, the UPA years showed a growth of 7.8 per cent. All of a sudden, a familiar growth narrative has been turned on its head; even UPA-I is not the gold standard of economic performance. Despite demonetisation and GST, it would seem that the economy is better off now. Oddly enough, a similar statistical exercise, carried out by a panel of the National Statistical Commission (NSC) which submitted its report some three months back, arrived at a contrary conclusion, elevating UPA growth rates in relation to the present regime’s. The NITI Aayog and CSO have, however, raised questions on the panel’s methodology. The switch to the new GDP series three years ago, which elevated growth rates particularly of the manufacturing sector, had given rise to considerable debate. The new official ‘back-dated’ series may only add to the confusion, if the CSO does not clearly explain how it has arrived at a different set of growth figures, compared with the NSC panel. To be sure, there is no divergence in the growth trend. However, this cannot be readily said for sectoral growth rates.

Referring to the NSC panel’s numbers, NITI Aayog Vice-Chairman Rajiv Kumar has explained that the shift to the new base year led to a ₹3 lakh crore difference in the absolute GDP figure for the base year, 2011-12, which was not adjusted properly across the preceding years. However, it is not clear what he means by ‘recalibration of economic activity’ in the latest exercise. So far, India’s economic statistics have been considered reliable — more so than China’s. While the Centre is right in arguing that changes in methodology are required to align India’s systems with global standards, frequent chopping and changing of data — particularly as elections draw near — cannot do India’s image much good.

It cannot be denied that this government has managed to bring a section of the informal economy into the formal fold. As a result, the share of organised private sector output has increased in relation to the informal sector, reducing inaccurate estimates for the latter. It is, hence, plausible, as the new series suggests, that the size of the service sector economy was overstated in the past. However, a basic question that remains unaddressed is why a change in base year should sharply affect GDP growth rates, when it should, in principle, only alter absolute GDP levels. A consistent application of either the MCA or ASI database should not lead to a swings in industry growth rates. The CSO and NITI Aayog need to look into such issues.

Published on November 29, 2018
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