Monday, Dec 10, 2018 | Last Update : 06:24 AM IST

GDP statistics, politics and recasting the past

The writer is adviser, Observer Research Foundation
Published : Dec 7, 2018, 12:05 am IST
Updated : Dec 7, 2018, 12:05 am IST

In comparison, the new CSO back series completely upends the growth estimates during the UPA period.

If jobs grew at just 0.3 per cent per year from the base employment level of 419 million, whilst constant GDP grew at 8.1 per cent per year, the productivity gains become an impossibly high 7.8 per cent per year!
 If jobs grew at just 0.3 per cent per year from the base employment level of 419 million, whilst constant GDP grew at 8.1 per cent per year, the productivity gains become an impossibly high 7.8 per cent per year!

History is written by the victors because they are the ones who survive and have “the force” with them. Last week the Central Statistics Office (CSO) of the Union government set the Yamuna on fire — not very difficult really, since it has more chemicals than water — by releasing the back series of the GDP estimates of 2005-06 to 2011-12.

This is not the first time a back series has been estimated using 2011-12 as the base year. The Dr Sudipto Mundle committee on real sector statistics, constituted by the National Statistical Commission (NSC), had submitted its report in July 2018. The CSO press note — somewhat cavalierly — failed to mention the Mundle Committee report, which did what is generally expected of such exercises. It smoothed the transition from the earlier 2004-05 GDP series all the way back to 1992-93. Unremarkable in content, it raised no hackles.

In comparison, the new CSO back series completely upends the growth estimates during the UPA period. It has the look and feel of a historical wrong being righted. Real (constant) growth FY2006 to FY2012 is now just 6.7 per cent — 1.3 percentage points lower than the earlier estimate of 8 per cent. This makes it even lower than the average growth of 7.1 per cent over the four years of the Narendra Modi government. Also, the growth “high notes” hit by the UPA have been lopped off. Gone are the UPA’s eye-popping annual growth levels of 9.3 (FY2006), 9.3 (FY2007), 9.8 (FY2008) and 10.3 per cent (FY2011).

This is why the CSO press note is being interpreted as a political rather than a technocratic document. Prime Minister Narendra Modi came to power despite the formidable growth record of the UPA by highlighting the lack of job creation. He did not then have the means to unpack the growth assumptions. He does now and, hey presto, the growth of yesteryear was apparently just hot air — a statistical mirage.

It is the tertiary sector (retail and wholesale trade, tourism, transport, Internet-related services, telecommunications, financial and administrative services) where growth has been marked down the most. Its estimated share in total GDP during FY 2005-06 has declined from the 53 per cent assessed earlier to 48.4 per cent. Some methodological changes seem sensible — using sales tax returns rather than sample survey data, where projections from the 1999-00 survey overshot the estimates of the 2010-11 survey; using reported customer usage minutes rather than the number of subscribers as a proxy for growth in telecommunications; assessing the contribution of the Reserve Bank to financial services on actual cost rather than on reference rates as is done for commercial banks.

None of these explanations impress the Congress Party, which immediately called foul. Former finance minister P. Chidambaram — somewhat indelicately, albeit entirely in line with the nature of the current political discourse — called the new back series a “bad joke”. For the average citizen, this exercise is mere sophistry — a mystifying game of the elite, much like cricket during the colonial days, so fetchingly captured in Aamir Khan’s Lagaan, with nothing substantive gained or lost at the end of the game.

Dr Pronab Sen, a former National Statistics Commission chairman, plays the political interference tune. Why has the Niti Aayog been involved hands-on in this exercise? For him, this is a negative institutional trend undermining the “professional” integrity of the CSO and compromising the credibility of Indian statistics. It does not help that the National Statistics Commission created in 2006 as a high-level advisory body on statistics, is virtually defunct today because of vacancies.

Dr Rajiv Kumar, the pugnacious vice-chair of the Niti Aayog, debunks such “conspiracy” theories and points out that even in the past, prior to the NSC being constituted, the CSO and the Planning Commission had worked in sync.

But doubts persist. Why, for instance, doesn’t the new CSO back series triangulate with well-worn economic metrics. After all, growth in corporate revenues and profits; growth in credit and investments; growth in exports and direct tax collections were significantly higher during the UPA period. How then could growth be lower at 6.7 per cent instead of the 8 per cent estimated earlier?

Dr Kumar says higher credit and investment do not generate higher growth unless they are put to good use. If used for “ever greening” loans instead, growth outcomes will suffer. This could well be true. But the CSO has not done itself a favour by not explicitly triangulating its results with established economic metrics.

Dr Surjit Bhalla, a member of the Prime Minister’s Economic Advisory Council and a former member of the NSC, fleshes out the reasons for the misalignment. He argues that low job creation of just nine million during the UPA period — from FY2005 to FY2012 — itself indicates that growth was overstated. If jobs grew at just 0.3 per cent per year from the base employment level of 419 million, whilst constant GDP grew at 8.1 per cent per year, the productivity gains become an impossibly high 7.8 per cent per year!

He implicitly fingers jugglery with inflation data as the reason why growth was overstated in the UPA years. Cross-year comparisons of growth are done on a “real or constant” basis. This artificial construct is derived by subtracting estimated inflation from the “current price” data. Lowering the estimated inflation can enhance “real” growth estimates. The deflator used earlier was 6.7 per cent. But a weighted average of the wholesale and consumer price indices yields an average inflation rate of 7.2 per cent per year. On this account alone, growth in the old series was overstated by 0.5 percentage points. But left unanswered is why jobless “statistically high” growth continues even today if one accepts the CMIE estimates of low job creation?

Dr Kumar has offered to meet interested experts to debate the methodology for the new back series. He has also accepted Mr Chidambaram’s challenge for a television debate on the issue. Politically, this is a good stratagem. A political point has already been scored refurbishing the economic credentials of the government versus the UPA. Meanwhile, just keep talking.

Tags: gdp, central statistics office