Whalesbook
The Data Debate
India's economic statistics, particularly national accounts and Gross Domestic Product (GDP) figures, are embroiled in a contentious debate. Criticisms, amplified since the base year was revised to 2011-12, often fall into four categories: resistance to change, selective data use, allegations of bias, and constructive suggestions. Experts stress that only the latter warrants serious consideration, but the other three have dominated public discourse. As India prepares for further base and methodological changes this year, separating substantive analysis from noise is paramount for market participants.
Methodological Shifts Under Fire
Resistance to change often stems from familiarity or investment in older methods. However, economic evolution necessitates updates. The shift to United Nations System of National Accounts (SNA) 2008 standards during the 2011-12 rebasing, which involved moving from factory-based data to enterprise-level analysis using the Ministry of Corporate Affairs (MCA-21) database, faced opposition. Critics questioned the inclusion of dummy firms, yet reliance on a small, unrepresentative RBI sample of 2,500 firms became inadequate for India's two million active enterprises. Similarly, replacing the five-yearly employment survey with the quarterly Periodic Labour Force Survey (PLFS) drew fire for perceived information loss. Yet, the higher frequency data on labor market parameters offers vital insights for macroeconomic policy and has proven more reliable than earlier private estimates.
GDP Measurement Complexities
Measuring GDP is inherently complex, especially in a large, diverse, and rapidly evolving economy like India. Scholars and analysts frequently leverage perceived data issues to question official growth estimates. This criticism often surfaces when growth rates are high or exceed forecasts, suggesting pre-conceived notions rather than objective analysis. While some data configurations might over-estimate growth, others imply underestimation, yet only the former typically garners attention. Forecasts, while useful, cannot replace the detailed measurement undertaken by statistical agencies.
Challenging Specific Criticisms
The absence of double deflation for GDP calculation was cited as an overestimation of growth when Wholesale Price Index (WPI) inflation lagged Consumer Price Index (CPI) inflation. However, this argument reverses when WPI exceeds CPI, as seen in 2021-2022, suggesting growth was actually underestimated during those high-growth periods. Aggregate credit growth's decline in the 2010s due to rising bank non-performing assets was used as a "smell test" to question growth figures. This metric, however, was ignored when both credit and GDP rose post-pandemic. Positive discrepancies in the expenditure approach are often highlighted as evidence of overestimation, yet negative discrepancies, indicating the opposite, are frequently overlooked. For instance, in Q3 FY24, a surge in net taxes above the 8% GDP average fueled arguments that high GDP growth was an anomaly. Yet, in Q1 and Q2 FY26, net taxes remained below 8%, with both GDP and GVA growing robustly.
Addressing Data Gaps
Concerns about low price deflators suggesting illusory real growth are also addressed. If inflation is underestimated, real GDP growth would indeed be lower. However, nominal output, which is directly measured, could also decline if real growth were lower than reported. The International Monetary Fund's (IMF) 'C' grade for national accounts estimation was cited, but its subsequent 'B' grade for growth estimation, due to errors in inflation estimates, weakened this argument. Criticisms are not ignored; valid points are being acted upon. Reforms include rebasing to a more recent period, employing more frequent surveys, integrating new datasets, and implementing double deflation for manufacturing where disaggregated WPI indices are available. Regular Annual Survey of Services Enterprises (ASUSE) surveys will replace reliance on Annual Survey of Industries (ASI) ratios in services. These proposed reforms are communicated transparently, inviting feedback.
Constructive Engagement Valued
Discrepancies between production and expenditure approaches, ranging from 3.3% to -4.1% of GDP from 2021-22 onwards, are expected to shrink as expenditure data improves. Revisions aim to reduce both under- and over-estimation sources, likely resulting in minimal overall change. The IMF's grading, while seemingly harsh, reflects standard assessments, with China also receiving a 'C'. The challenges faced by emerging markets, including frequent external shocks, warrant acknowledgment. Constructive suggestions that recognize the task's magnitude are welcomed. However, attacking professional cadres and their probity for political gain is deemed unfair. The writer previously served on the Monetary Policy Committee (MPC).