The new GDP back series raises more questions than it answers

STATISTICAL CONUNDRUM Not just political parties, independent experts have also criticised the CSO’s revised GDP data

NEWDELHI: The Central Statistical Office (CSO), which releases India’s official GDP numbers, has released a partial back series of GDP statistics for the new GDP series (base year 2011-12). The back series has come almost four years after new GDP series figures were announced in January 2015. They are partial, because the back series ends at 2004-05 currently. The CSO has said that figures for earlier years will be released subsequently.

Even before economists and statisticians could deliberate on the figures, they have generated a political storm. This was expected. The numbers show that the economy has performed much better under the current government than the Congress led United Progressive Alliance (UPA). This is in contrast to what was shown by the old GDP series (2004-05 series).

Predictably, the Congress has rubbished these figures and accused the CSO, and by implication the government, of fudging numbers.

The government has dismissed these allegations. In his blog, finance minister Arun Jaitley has accused the Congress of being selective about the data under the new series. “Those who took after the new series in 2015 now consider the new series to be a “hatched job” and a “bad joke”. What humours some when data shows an upward trend depresses them if it moves in the reverse direction, Jaitley wrote.To be sure, the new GDP estimates have been questioned by independent economists too. The seeds of these doubts were sown in when it was revealed that the methodology which was used for estimating output by the private corporate sector in the GDP numbers were different from what was agreed upon by a committee appointed by the CSO itself. The revision led to a significant hike in value added and corporate sector saving figures. A 2015 Mint article by Pramit Bhattacharya had discussed these issues in detail.

The GDP controversy erupted again in August this year, when a committee appointed by the National Statistical Commission (NSC) estimated a back series for the 2011-12 series. These figures suggested that economic growth was much higher under UPA I than what was showed in the old series. It actually went past the psychological barrier of 10% in 2006-07. To be sure, these estimates did not follow the standard methodology used for calculating internationally comparable GDP estimates.

While the CSO has claimed that the latest numbers are in keeping with the United Nations System of National Accounts 2008 framework, an important problem remains. This has to do with use of ministry of corporate affairs (MCA) database for calculating GDP figures. Since the MCA database is not available for the period before 2006-07, consistent calculation cannot be made. This problem was also flagged by N R Bhanumurthy, professor at the National Institute for Public Finance and Policy, who chaired the sub-committee which prepared GDP back series numbers in the NSC report discussed above.

In fact, the CSO statement which was released along with the GDP back series numbers admits the problem of non-availability of data. “The methodology for preparing the back series estimates for the years 2004-05 to 2010-11 is largely the same as the methodology followed in the new base (2011-12). In certain cases, owing to the limitations of the availability of data, either splicing method or ratios observed in the estimates in base year 2011-12 have been applied”, it says. One will have to wait for independent academic evaluation of these methods to ascertain whether such adjustments are justifiable.

There is another catch with the GDP back series numbers. GDP growth figures are expected to be in line with other important economic variables too. Fortunately, many of these are not embroiled in controversies around change of base year. It is here, that these numbers raise some troubling questions.

For example, Annual Survey of Industry (ASI) data is taken as the most comprehensive indicator of industrial activity in the Indian economy. A comparison of growth of industrial output in the ASI database and manufacturing output in the old GDP series shows that ASI figures were always higher than GDP figures. However, this relation seems to have weakened in the recent phase. Even Index of Industrial Production (IIP) data on manufacturing growth seems to be a continuous underestimate of manufacturing activity shown in the new GDP figures.

This is not to suggest that either of these is definitely better than the other. Such a claim will require serious research beyond the scope of journalistic work. However, it does raise serous questions about using indicators like the ASI and IIP to understand industrial activity in the economy now. (see Chart)

The short point is a credible GDP series should present a methodologically sound and long-term coherent picture of the economy. There are substantive reasons why the new GDP series has shortcomings on this count. It is important that these concerns are addressed in a transparent and effective manner in the days to come and political one-upmanship does not vitiate the process beyond redemption.