Quo vadis Indian economy as govt revises GDP estimates yet again

India’s economic or gross domestic product growth (GDP growth) was put at 4.7% in the quarter ended October-December 31, 2019 as compared to the previous quarter, as per data released by the National Statistical Office (NSO) on Friday (February 28).

The GDP growth was 5.6 per cent in the corresponding quarter of 2018-19 and was 4.5% in the preceding quarter of 2019-20, according to the first estimate official data.

The GDP data released on Friday also indicates that consumer demand, private investment, and exports are all struggling, while higher government spending and an improvement in rural demand are the only positives.

Many economists expect the impact of the government’s efforts to be outweighed by the global fallout from the coronavirus epidemic that began in China. The coronavirus remains a critical risk to the Indian economy as India depends on China for both demand and supply of inputs.

The government had, in its second advance estimate for 2019-20, indicated a GDP growth at 5%, in comparison to 6.1% growth in 2018-19. This figure is the lowest India has seen in the past 11 years. It means that this quarter, the economy has to grow at 5.8% to meet the government’s expectations.

This, in the present context, might seem unlikely. However, it does look like this would be possible, thanks to a bit of revision in estimates.

Credibility of numbers

Even as the India GDP growth numbers for December 2019-20 quarter (4.7%) were trickling in, which appeared to be a mild improvement of 0.2% over the previous quarter.

Data from the NSO indicated that the growth in the September quarter was revised upwards to 5.1% from 4.5%. (The chronology of revision is now April-June 5.6% (5.0% estimated earlier), July-September 5.1% (4.5% estimated earlier) and October-December 4.7%). This is not the first instance of such revisions with the GDP numbers in the recent past.

Related news: India’s GDP growth slips to 4.7% in October-December quarter

Questions over the quality of Indian economic data has always been in the air since 2015 when the Modi government made major changes in the way it calculated GDP. Eminent economists, including former Governor of RBI Raghuram Rajan and IMF’s Chief Economist Gita Gopinath, have consistently flagged the anomalies in the new series.

Even former chief economic adviser Arvind Subramanian’s research in 2019 had gone on to say that the numbers could possibly have been overstated thereby portraying a rather rosy picture. (He had tried to correlate the GDP data along with other high-frequency indicators).

Many in the dispensation took umbrage to his statement and decided to discount his views as politically motivated. As it turned out later, India’s official GDP data probably overstated growth by as much as 2.5 percentage points between 2011-12 and 2016-17. So, the annual GDP growth during the period was about 4.5%, far weaker than the happy 7% figure officially reported.

Related news: Moody’s cuts India growth projection to 5.4% for 2020

Prof. Subramanian’s methodology, most certainly, can be questioned and from a data-centric point of view, even his estimate of actual GDP growth may be wrong. But his findings on the Indian GDP data conundrum: ‘If India has been growing, why do most of the other indicators suggest the economy is stagnating or slowing?’ remains an unquestionable fact. Especially so as comparisons across time series and with other peer developing economies validating the conundrum.

It seems we need to go back to the drawing board when it comes to the methodology of our GDP calculation. That is a question that those keenly following the Indian economic data sets must indeed try to answer.