Is India's GDP growth overstated? Economic Survey counters Arvind Subramanian, others

Beginning from Arvind Subramanian, several economists and international agencies have raised doubts over India's GDP growth rate figures in past one year. The Economic Survey 2020-21 rejects the charge.

HIGHLIGHTS

• Economic Survey counters former CEA's charge over GDP growth calculation
• Former CEA Arvind Subramanian had said India's GDP growth rate was overestimated
• Economic Survey says test of methodology finds no evidence in such claims

With India's GDP growth rate declining, there has been a raging debate over the accuracy of the economic growth projection by the Modi government. This began with an article written in June 2019 by former chief economic adviser Arvind Subramanian in Indian Express.

Subramanian suggested that with the change in base year and calculation method, India's GDP could have been overstated by a 2.5 percentage points every year since 2011. This put the cumulative GDP growth rate for 2011-18 at 19-21 per cent.

He was the chief economic adviser of the Modi government from October 2014 to June 2018. Coming from him, a claim of overstatement of India's GDP growth rate by as high as 2.5 percentage points put big question mark on the authenticity of the growth figures that the Modi government presented or projected. The Opposition accused the Modi government of fudging GDP data. Continued economic slowdown did not help the government either.

Earlier this month, former Union Finance Minister Yashwant Sinha called India's GDP number "imaginary". The International Monetary Fund (IMF) too raised doubts over the GDP growth calculation methodology.

The entire issue emerged from a report released by the National Statistical Commission (NSC) in 2018. The NSC report showed double-digit growth rate for some of the UPA years. The Centre then came up with another GDP back series data that showed lower GDP growth rate under the UPA government.

Now, the Economic Survey 2019-20 presented in Parliament on Friday has devoted a separate chapter to debunk the suggestion that India's GDP growth figures were overstated. This edition of Economic Survey was prepared under Chief Economic Adviser Krishnamurthy Subramanian, who had succeeded Arvind Subramanian five months after the latter resigned from the office citing personal reasons.

The Economic Survey says, "As concerns about the veracity of India's GDP growth rates may generate substantial concerns not only to investors but also to policymakers, this issue warrants a careful examination."

It has concluded that after undertaking this assessment "by comparing the Indian GDP growth rates to those of other countries" using the same methodology, "no evidence of misestimation of India's GDP growth is found".

The Economic Survey goes on to elaborate its point. "The models that incorrectly overestimate GDP growth by over 2.77 per cent for India post-2011 also mis-estimate GDP growth over the same time period for 51 other countries by any where between +4 per cent to -4.6 per cent," says the Economic Survey.

The survey finds GDP growth rate overestimation of the UK by +1.6 per cent, Germany by +1.0 per cent, Singapore by -2.3 per cent, South Africa by -1.2 per cent and Belgium by -1.3 per cent.

"However when the models are estimated correctly by accounting for all unobserved differences among countries as well as the differential trends in GDP growth across countries, GDP growth for most of these 52 countries is neither over- or under-estimated. In sum, concerns of overestimation of India's GDP are unfounded," the Economic Survey concludes.

This assertion is significant in the view that much against expectations of economists and international agencies, the Economic Survey has pegged the GDP growth rate for 2020-21 at 6.0-6.5 per cent.

The World Bank, the IMF and the India Ratings of the Fitch Group all predicted a lower growth rate. The World Bank estimated India's GDP to grow by 5 per cent (same as 2019-20 estimates) in 2020-21.

The IMF, which estimates India's GDP to grow by 4.8 per cent in 2019-20, projected India's economic growth for 2020-21 at 5.8 per cent. The India Ratings kept it at 5.5 per cent.

The Economic Survey is more optimistic with India's GDP growth rate believing 2020 will see the nation's economy bouncing back to faster growth trajectory.