Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

[op-ed snap] Number theory: on lowering UPA-era GDP growth rate

Note4students

Mains Paper 3: Economy | Indian Economy Issues relating to planning

From the UPSC perspective, the following things are important:

Prelims level: GDP calculation, Base year, CSO, United Nations System of National Accounts

Mains level: Controversy related to GDP revision and why a robust methodology is necessary for calculating growth


Context

Revised GDP data

  1. The release of the new GDP back series data shows that the economy grew at an average of 6.7 per cent between 2005-06 to 2008-09 as well as between 2009-10 to 2013-14
  2. This is lower than the earlier estimates of 8.1 per cent and 7 per cent average growth respectively going by the earlier 2004-05 base
  3. The biggest of learning is that India never really decoupled from the global economy during the years of the financial crisis (2008-10), unlike what was earlier believed

Revisions of figures not new

  1. Backcasting, or reworking past national accounts statistics based on the latest base year, is a regular exercise that governments carry out
  2. Mainly done to enable precise comparison and analysis, it is a difficult exercise prone to contestation as it involves the inclusion of newer data sources, exclusion of outdated ones and making some subjective assumptions in the process

Spat over economic data

  1. In January 2015, when the government switched to a new series with 2011-12 as the base year, and subsequently after the report of the Committee on Real Sector Statistics which was mandated by the National Statistical Commission to work out a robust methodology under the new series a few months ago, there was a controversy, with agencies such as the IMF besides the RBI flagging their concerns
  2. The release of the data under the new series in 2015, and also later, had led to sceptics questioning the validity of growth figures

Reliability of the data

  1. Any criticism of the data has to take into account the fact that it has been generated by a thoroughly professional organisation, the CSO, and the methods have been scrutinised by experts, including past chief statisticians, and the Advisory Committee on National Accounts Statistics
  2. Certainly, the release of the back series by the Niti Aayog goes against convention and is bad in optics
  3. But this should not be the reason to contest its integrity
  4. The method of computation reflects the latest United Nations System of National Accounts
  5. It also captures changes in the economy since 2004-05
  6. Data sources have also been updated. Experts had testified to the robustness of the method when it was introduced in 2015

Way forward

  1. There is little doubt that India needs to invest more in data collection and integration and do informal sector surveys more frequently
  2. Robust, updated data are, in fact, insurance against politicians hijacking what is essentially an economic exercise
  3. Revisions in economic growth data are not uncommon elsewhere but what political parties ought to keep in mind is the potential damage to the credibility and its impact on investors, both global and domestic, who rely on the quality, reliability and consistency of data when they pump in money and on informed policy-making

With inputs from the article: Back and forth

Subscribe
Notify of
0 Comments
Inline Feedbacks
View all comments