Updated: December 30, 2019 7:46:16 am
The Narendra Modi government deserves credit for constituting a new Standing Committee on Economic Statistics “to review the extant framework relating to data sources, indicators, concepts/definitions and other issues” connected with measurement of economic activity. Significantly, the panel is headed by the former chief statistician of India, Pronab Sen, and has at least three other economists — CP Chandrasekhar, Hema Swaminathan and Jeemol Unni — who have been critical of the alleged “political interference” in the working of the official statistical machinery and “the tendency to suppress uncomfortable data”. The setting up of the committee signals an acknowledgment on the government’s part that there is a credibility problem with official data, which matters both for investors and for policymaking itself. And that it has to be addressed.
Accuracy of data, including its generation and dissemination, is important, especially in today’s context where the extent or even cause of the economic slowdown in India is not fully clear. GDP estimates would suggest that the stalling of growth happened only after around the last quarter of 2018-19. But can an economy fall off a precipice like this? The collapse of IL&FS in September 2018, no doubt, precipitated a liquidity crisis for non-banking finance companies, but could it have created a disruption of the scale that demonetisation and the rollout of the goods and services tax (GST) did? This question needs answering because there is, in the public domain, a National Sample Survey Office (NSSO) survey that apparently shows household consumer expenditure to have fallen in 2017-18, a year when listed companies posted decent sales growth. Is it possible that they simply gained market share at the expense of unorganised enterprises, whose decline is not being properly captured in GDP data? This is not an implausible scenario, given the informal sector’s significant share in both output and employment, which has certainly taken a hit post demonetisation and GST. Even assuming the NSSO numbers on consumption for 2017-18 to be wrong — the report itself has been withheld — the paucity of data with regard to unorganised sector economic activity is glaring. It is even more so, as that could hold a key to why even organised FMCG or two-wheeler firms have seen their sales drop significantly in recent months.
Besides restoring the credibility and independence of the official data system, the Modi government also needs to come clean on its fiscal accounts. The former chief economic adviser, Arvind Subramanian, has rightly argued that the absence of reliable data makes formulation of policy responses — including whether and how much room for fiscal expansion exists — difficult. It’s like running a car with broken dashboard instruments.
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