Protect the credibility of macro data

Madan Sabnavis | Updated on February 07, 2019 Published on February 07, 2019

The latest upward revision of GDP is hard to explain. The Centre’s disavowal of job data too leaves questions unanswered

An institution that has been quite respected in India is the CSO and the statistics it has disseminated have stood the test of time. The data are crucial because they go beyond growth and are used for reckoning economic ratios like fiscal deficit, debt, current account deficit, and so on. Further, these are used for all global comparison; while multilateral institutions like the IMF and World Bank have their calculations, the CSO is the starting point. This is why there is sanctity attached to data.

However, given the fact that there is a large unorganised sector that spans all the three segments — primary, secondary and tertiary — it is always problematic to get accurate data and a large number of proxies are used to arrive at output numbers. To top it all, the numbers have to be revised when fresh information is received, which makes it even more challenging. Hence, while all monetary data that come from the RBI are generally final as the data procurement is from formal sources, the same does not hold for the CSO. Therefore, it is even more important for the sanctity of the data to be preserved, else credibility can be stained.

An important development that has taken place here is that base years have been changed, which was necessary because the existing series had become outdated and non-representative. Unfortunately these revisions were made when the regimes changed and this has tended to create a lot of ‘political noise’.

Theoretically speaking, GDP and employment are macro numbers where governments have a limited contribution directly. They are only enablers and contribute directly only through what they spend through Budgets or persons employed. The policies reap rewards over a period of time and are hard to associate with the regime.

However, it has become part of a larger game of one-upmanship. This means that all governments across the world take credit when GDP growth is higher or unemployment lower. They are not willing to accept that things can be worse-off than in the previous regime. It is taken to be an effrontery to accept such a development.

Now when there were certain leakages from the statistical institutions on employment recently or an earlier paper released on the past series of GDP — which has since been rejected and replaced by an official estimate — which completely reverses the findings, there is even more speculation generated.

Employment numbers are even more amorphous and there are two distinct stances — one based on CMIE, which says things are not good, and the other on EPFO, which is gung ho about jobs being created as enrolments increase.

Employment data

Let us look at the two issues which have caused this upheaval. The NSS study on employment, which got into the media though not officially released, highlights the fact that unemployment was at its highest in the last 45 years in 2017-18. One would relate with this number as the farm sector and SMEs (which have the largest number of self-employed) had been displaced by demonetisation and GST. These are empirical facts. Now that it has been argued by officials that these numbers are not right and have not been approved by the government it poses a conundrum for the analyst. If employment was rising, then it should have gotten reflected in higher consumption or savings, which was not the case in this period. Everyone is talking of boosting consumption because it has not been forthcoming. Further, the migration of youth from rural to urban areas has hit a roadblock as the real estate sector faced stagnation last year on account of RERA.

If the so-called leaked document is incorrect, it is important that the new report clearly states why it was wrong or else it would give rise to speculation just has been the case with the GDP back-series data.

Further, an argument has been made that a survey cannot be compared over time. But all surveys are supposed to be representative of the macro situation, else they will not have relevance. In fact, the use of proxies in calculating GDP is also based on such assumptions.

Though standards change for what constitutes employment, the numbers over the years are definitely comparable; and just as they can be done for GDP, the same holds for employment.

The second release is even more interesting, where the revised GDP growth numbers for FY17 and FY18 have been increased from 7.1 per cent and 6.7 per cent to 8.2 per cent and 7.2 per cent, respectively. This changes the narrative fully because it indicates that demonetisation was a period when GDP grew at the fastest rate in the preceding six years which is hard to believe considering that all activity came to a standstill for five months as money was not available.

Farmers were unable to sell their produce, SMEs had to close down due to non-payments, corporate results were down in Q3 and Q4 of the year (especially the consumer-oriented ones) and bank credit growth slowed down sharply to 8.2 per cent which is the lowest since 1991-92 when it was 8 per cent.

Clearly such acceleration in the economy is hard to explain. In fact, if the economy was booming at over 8 per cent in 2016-17 and 7.2 per cent in 2017-18, there should be less concern about growth. But this has not been the case; there is palpable concern over both growth and employment.

While it has been pointed out that the data received is more contemporary, which cannot be disputed, then the wisdom of having such advance releases needs to be revisited. There are fairly big divergences between the advance estimates in January 2018 and January 2019. Further, if correct information comes in only after a year due to corporate or crop data, then there should be sharp qualifications made. Else, the results can be construed as being fairly misleading.

We certainly need to be careful with revisions as sharp changes in magnitude and direction raise doubt. When this happens often, it can lead to confusion for the user who has to change the narrative behind the numbers.

The writer is Chief Economist, CARE Ratings. The views are personal.

Published on February 07, 2019
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