Is govt cooking up economic growth data?

Are India’s statistics just cooked up to give them a good flavour? The question has been raised by critics after the news that statistical “discrepancies” in the January-March quarter were as high as 4.8% of GDP. Critics say this casts doubt on the government claim that GDP growth was a high 7.9% in the January-March quarter, and averaged 7.6% over 2015-16 as a whole.

I have long worried about inconsistencies in India’s data. In particular, I worry about the National Accounts’ estimate that manufacturing growth was 9.3% last year, when the Index of Industrial Production (IIP) showed almost no growth. True, the IIP covers large industries and leaves out most small industries, and the latter have been growing faster. But that seems inadequate to explain the difference. Nor does 7.9% growth sit well with slow bank lending to corporations, or exports falling for 17 months in a row (every other Asian miracle economy had double-digit export growth). India needs an independent audit of its statistical systems by global experts.

But let me say categorically that India’s statisticians do not fudge data. They are highly regarded internationally for both skills and integrity. India may have systemic flaws in statistical estimation, maybe serious ones, but there is no fudging to give the government a bogus halo. The data collection points are so vast and decentralized that nobody can ensure fudging even if so inclined.

Authoritarian China is often accused of fudging data to ensure that growth estimates don’t fall significantly below the government’s targets — that might invite reprisals from above on the statisticians. But authoritarian systems with doctored accounts do not expose themselves by publicizing large “discrepancies”. Only transparent systems (like India’s) do that. It is a sign of honest intentions, even if not accuracy.

A discrepancy does not mean exaggeration: it can also mean underestimation. If India’s data were always fudged upward, discrepancies would never be negative. In fact, GDP estimates had negative discrepancies in 2014-15 and 2013-14. The quarterly discrepancy of 4.8% in January-March 2016 was the largest ever, but not much larger than the 4.5% discrepancy of October-December 2012, which excited no comment or accusations at all.

The aam aadmi may not know what exactly GDP is, or how it is measured. It can be measured as the total value of goods and services produced in a period. It can also be measured as the sum of all spending and investment in that period. Economic theory tells us that the two figures should be the same. Yet in practice there are a thousand difficulties in collecting accurate data on every item produced or consumed. This typically leads to differences in the two measurements.

Which of the two methods is more accurate? Measuring the production of goods and services (much of it done by large entities with reliable data) is easier and more accurate than measuring the spending and investment of over a billion individuals, corporations and governments. So, GDP estimated by production is the standard published estimate in almost all countries, including India.

In January-March, GDP measured by production was 4.8% higher than measured by spending/investment. This is the “discrepancy”. For the whole of 2015-16, the discrepancy was 1.9%. In neither case does the discrepancy represent cooking: there is no reason to assume that the spending data are better than the production data. Note, the discrepancy in the July-September quarter was negative, the very opposite of supposed upward cooking.

The aam aadmi is not interested in detailed statistical analyses. He is instinctively suspicious of politicians and their tall claims. When so many legislators stand accused of murder, rape and dacoity, will they not do statistical fudging as well?

No, because there are no political rewards for fudging. No election is fought on the basis of statistical estimates, which are gobbledygook to the aam aadmi. Politicians will invent figures without a second thought, but will not spend any time and energy (with the risk of an expose) in trying to manipulate a decentralized data apparatus into concocting figures systematically.

None of this means that Indian data is good. We need a new revamped system. But even if a revamped system lowers GDP growth from 7.9% to say 6.9% or even 5.9% in the last quarter, India will still be among the fastest-growing countries in the world. Despite many flaws, it is performing decently in a gloomy world economy.

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