Defending his findings on overestimation of India’s GDP growth rates, former Chief Economic Adviser Arvind Subramanian on Wednesday said a 7 per cent-plus growth in the post-2011 period is inconsistent with performance of macroeconomic indicators such as weak exports, credit and investment growth. Subramanian also said that his research paper was a validation exercise of GDP from demand side, and not a new way to estimate GDP.
Speaking at a panel discussion on GDP estimation organised by NCAER, Subramanian stated that there were major shocks in the post-2011 period such as de-globalisation, twin balance sheet crisis, UPA-2 policy disintegration, consecutive agricultural droughts and demonetisation, which caused macro engines of investment, credit, and trade to stall, yet how could they impact GDP growth marginally. No country has grown at 7 per cent plus with exports growth below 5 per cent, he said adding that the deflator for GDP was, in his view, underestimated, which led to overestimation of real GDP.
“Number of technological questions were raised. How can GDP be ensured with just four variables? I wasn’t trying to replace the CSO. Can’t be so vain. Why should macro indicators like import, export, credit be negatively correlated with growth? Why should GVA manufacturing and IIP manufacturing have weak correlations? Why should they go from strong positive to negative correlation? It’s odd … I used a framework not to estimate but validate GDP from demand side,” Subramanian said.
Subramanian had concluded that the country’s growth has been overestimated by around 2.5 percentage points between 2011-12 and 2016-17. While official estimates have pegged average annual growth at around 7 per cent during this period, actual GDP growth is likely to have been lower, at around 4.5 per cent. Subramanian also pointed to the criticism of him overlooking revenue and productivity growth in his research paper, to which former Chief Statistician of India Pronab Sen responded by saying that improvements in technology and automation has led to productivity growth.
GDP numbers don’t incorporate technological changes, it will show up in growth soon, Sen said.
Sen also said that the findings are based on correlating volume indicators which were anyway being used by CSO in national accounts estimation. “Most of the volume indicators which have been used are precisely the indicators which were used by the CSO to calculate the GDP. So if you are correlating the part, and then correlating to some of those (indicators), so no surprise,” Sen said while explaining the positive correlation between indicators and GDP growth cited by Subramanian in his paper.
To the reason raised by Subramanian that there is no influence of productivity growth because profits are collapsing, Sen said that profits were impacted since compensation of employees went up. “Arvind says there is no influence of productivity growth because profits are collapsing … value added is profits plus compensation for employees, the only way profits can go down is actually if compensation for employees goes up,” Sen said.
“With the recent NSS report, which shows serious increase in unemployment, along with many companies’ reports that show downsizing of workforce, there is a concern … it also means you are replacing a lot of low skilled labour with few high skilled, highly paid labour. Why? The reason will be if the technology that you are using is going up. There has been a lot of fear mongering in recent years about automation pulling us down. If the manufacturing data from MCA is correct, automation has come, it has been there since last 7-8 years,” Sen added.
Sen said that GST is a good way to measure intermediate consumption and B2B transactions but not consumption or B2C, adding that the CSO needs to look into the use of corporate data to extrapolate the informal economy.
Non-corporate has been hurt post demonetisation, GDP series doesn’t track that. If CSO doesn’t fix it, it’s a problem, he said.
📣 The Indian Express is now on Telegram. Click here to join our channel (@indianexpress) and stay updated with the latest headlines