‘We don’t hear murmurs… when data disappoints’: CEA Nageswaran hits out at GDP critics

Data released late November showed India’s GDP growth rate comfortably beat expectations for the second quarter in a row, coming in at 8.2 per cent in July-September after 7.8 per cent in April-June in the ongoing fiscal year.

However, economists have pointed out that growth was likely overstated in the two quarters due to certain deficiencies in the methods used by the Statistics Ministry, including the use of the so-called single-deflator method to arrive at real gross value added (GVA) from current price estimates. At a time when prices of commodities used as inputs are falling or not rising at the same pace as the price of final goods and services, the use of this method can inflate a sector’s GVA. Further, as wholesale inflation is mostly used to deflate GVA in current prices to arrive at constant price estimates, economists have also argued that this can lead to overstating real GVA — and, in turn, growth — when wholesale inflation is lower than the actual inflation for a sector, such as services. In July-September, for instance, the difference between real and nominal services GVA growth as per the GDP data was only around 120 basis points (bps), implying services sector inflation of only 1.2 per cent. However, economists say this is far lower than the services inflation of around 3.3 per cent as per Consumer Price Index data.

On Tuesday, Nageswaran argued that similar complaints about the single-deflator method were not heard when wholesale inflation was high in FY22 and FY23, which likely reduced services sector growth on a real basis. The government’s top economist said that using a hypothetical services sector price deflator as a proxy and applying it to GDP data from FY22 showed that the discrepancy is “not even 1 per cent”. As such, Nageswaran said, the GDP data wasn’t really overstating growth.

“But unfortunately, all these under-informed or half-baked questions are left deliberately hanging so as to sow the seeds of doubt in people and it doesn’t necessarily serve any purpose because they are not rigorous.”

Nageswaran also said that India does not follow certain questionable methodologies used by developed countries while compiling some of their official statistics, including the inflation number. And while all estimation methodologies have limitations, “we seem to be particularly fond of questioning our methods and less so of others, somehow thinking that our methods are inferior to others”. This, the CEA said, was a reflection of our mindset and that had to change.

“As long as they (data) are consistent, transparent, and reveal broadly the true picture of the underlying economy and pass the smell test, we need to be a lot more mature in the way we evaluate and publicise or write our critique of the data. And also, when we write our critique of what the great work, the tireless work that the Ministry of Statistics does, we should also be symmetric in our appreciation when things do not meet our priors,” Nageswaran said, adding that MoSPI should make its manuals and other documents easily accessible to the public “because credibility comes from replicability”.

“If outsiders are able to replicate our data, our estimates, then their trust in the data will also increase. And even after that if there are people willing to criticise, then we can’t do much about them; that is part of their DNA or work ethic or their daily practice or ritual,” he said.

On the informal sector, the CEA said measuring its size was not an easy exercise because there is no uniform definition of the term. However, Nageswaran said he was of the opinion that the extent of the Indian informal sector was likely being overstated because Indian businesses are predominantly sole proprietorships and small limited partnerships and don’t keep separate books of accounts for their personal and professional activities.

“That is a reason, I think, that no matter how much we do, we actually are ending up overestimating informality,” Nageswaran said.