Subramanian cherry-picked few indicators to prove his hypothesis: EAC-PM rebuts ex-CEA’s claims on GDPhttps://indianexpress.com/article/business/economy/arvind-subramanian-research-paper-on-gdp-overestimation-eac-pm-rebuttal-5788658/

Subramanian cherry-picked few indicators to prove his hypothesis: EAC-PM rebuts ex-CEA’s claims on GDP

Subramanian's paper on India's GDP has led to a raging debate on the growth numbers, with the Centre and the EAC-PM responding to the issue.

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Former Chief Economic Adviser Arvind Subramanian. (Express photo by Prem Nath Pandey/File)

The Economic Advisory Council to the Prime Minister (EAC-PM) Wednesday delivered a point-by-point rebuttal to a recently published paper by former Chief Economic Adviser (CEA) Arvind Subramanian in which he claimed India’s gross domestic product (GDP) growth rates were overestimated.

In a detailed note titled ‘GDP estimation in India-Perspectives and Facts’, the EAC-PM categorically rejected Subramanian’s methodology, arguments, and conclusions on the basis of academic merit and grasp of Indian realities.

“The note provides detailed evidence that indicates that Dr Subramanian has cherry-picked a few indicators and performed a rather unconvincing regression analysis to prove his hypothesis that India’s GDP was over-estimated post 2011-12,” read a release from the Niti Aayog.

It also said that the EAC-PM has highlighted eight clear points with supportive facts and arguments that debunk Subramanian’s paper in entirety. While it stated that its GDP estimation methodology is by no means a perfect exercise and that the Ministry of Statistics and Program Implementation is working on multiple aspects to improve the accuracy of economic data, the EAC-PM said India’s GDP estimation methodology is at par with its global standing as a responsible, transparent and well-managed economy.

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It also provided a clear rationale for India’s switch to an improved GDP estimation methodology in January 2015. “The new methodology that uses 2011-12 as the base year includes two major improvements, a) Incorporation of MCA21 database, and b) Incorporation of the Recommendations of System of National Accounts (SNA), 2008. This change was in line with other countries that have changed their methodologies in line with SNA 2008 and revised their respective GDP figures. On an average, real GDP estimates saw an increase of 0.7% among OECD countries,” the release read.

Subramanian’s paper has led to a raging debate on the growth numbers, with the Centre and the EAC-PM responding to the issue. In the research paper, ‘India’s GDP Mis-estimation: Likelihood, Magnitudes, Mechanisms, and Implications’ published at Harvard University, the former CEA concluded that India’s growth has been overestimated by around 2.5 percentage points between 2011-12 and 2016-17.

Last week, the Council had pointed out several flaws in Subramanian’s analysis, arguing that he used questionable proxy indicators and his research did not allow for GDP increases on the basis of productivity gains. A country’s GDP is in nominal terms and any exercise should be on the basis of nominal figures, not real growth rates, the Council had said, adding that “any attempt to sensationalise what should be a proper academic debate is not desirable from the point of view of preserving the independence and quality of India’s statistical systems, all of which the former CEA is familiar with.”

The EAC-PM paper further said Subramanian chose to overlook tax data arguing that “we do not use tax indicators because of the major changes in direct and indirect taxes in the post-2011 period which render the tax-to-GDP relationship different and unstable, and hence make the indicators unreliable proxies for GDP growth”.

Unlike many indicators, it said tax data is not collected through surveys or by agencies through arcane techniques, these are hard numbers and should be an important indicator of growth. “Further, there have been no major changes in tax laws until the end period in the author’s analysis (March 31, 2017). GST was introduced on July 1, 2017.

“The author’s logic of not using tax data appears to be a convenient argument meant to avoid inconvenient conclusions based on hard facts,” it said.

With PTI inputs