For Against

The biggest casualty of frequently changing or Employment numbers are even more amorphous
unreliable data are new investments, because and there are two distinct stances — one based
investors cannot take a secured call on where to on CMIE, which says things are not good, and the
put their money. Frequent and drastic changes in other on EPFO, which is gung-ho about jobs being
data can send conflicting signals to investors, says created as enrolments increase.
D.K. Joshi, chief economist at ratings agency
Crisil.
Arun Jaitley How the GDP can grow so fast after
demonetisation also?
The new series is more broad-based and better
reflects the Indian economy. It’s globally more
comparable. Most experts, including those who
headed the CSO, have opined that this better
represents the real state of economy.
Defending the new back series, Rajiv Kumar, the How the GDP can grow while the farmers are
government-appointed vice-chairman of NITI unable to sell their produce, bank growth rate is
Aayog, says that economists and researchers had at its lowest, SME’s had to close down due to
been demanding it for the past two years and non-payments?
former chief statistician T.C.A. Anant had said
that the new data would be released by 2017.

Kumar rattled off a list of five statisticians who

were involved in the vetting of data before it was
presented.
One possible explanation for the big change in
numbers is inflation, which was much higher
during the UPA regime, in turn inflating nominal
GDP growth. The decline in inflation in the past
four years, says Joshi, accounts for the difference
between real GDP (GDP adjusted for inflation)
and nominal GDP growth. Consumer inflation
between fiscals 2006 and 2014 averaged 8.5 per
cent as against 4 per cent in the past four fiscals.
Amid questions over the timing and motivation
behind the new back series of the GDP, NITI
Aayog vice-chairman Rajiv Kumar tells Shweta
Punj that the data is credible, but he is open to
exploring technically better alternatives in the
future.
Indirect tax collection is the only parameter
where the NDA government has performed
better than the UPA. The central government’s
indirect tax revenues grew at a CAGR of 15.7 per
cent in the last four years, against 12.1 per cent
CAGR during the UPA years.
Two back to back drought years, then also
agricultural growth rate higher than 2004-05 to
2013-14 without the policies that have been
supportive.
The Index of Agricultural Production, with a base
of 100 for the triennium ending 2007-08, had
risen to 129.8 in 2013-14. But after falling, it
barely recovered to 130 in 2017-18.
Agriculture, like the non-agricultural informal
sector, collapsed first after demonetisation and
then after a poorly implemented Goods and
Services Tax. Both measures affected output as
well as jobs, especially in the unorganised sector
which constitutes nearly half of GDP and half of
all exports.
The back series data in question, said Jaitley, had
been calculated by a highly credible organisation,
the Central Statistics Office, which maintains an
arm's length distance from his ministry.
Chidambaram had said on Wednesday of the NITI
Aayog's revised GDP numbers: “They are a bad
joke. Actually, they are worse than a bad joke.
The numbers are the result of a hatchet job.”
Jaitley reminded Chidambaram that the latter
had, on February 3, 2015, welcomed the new
GDP series. He quoted Chidambaram as saying:
“The new data successfully establishes the fact
that (the Congress-led) UPA (government) had
succeeded in reviving the economy.
“For the year 2012-13, the growth rate was
revised from 4.7 per cent to 5.1 per cent and
later again to 5.5 per cent. Similarly, for 2013-14,
the GDP growth rate was revised from 5
per cent to 6.9 per cent and later revised to 6.4
per cent,” the minister said.
He said what was revised from the year 2011-12
onwards is now being revised from 2004-
05. “Consequently, the same basis which
improved the growth estimate in the last two
years of the UPA Government somewhat
downgraded it in the earlier years,” he added.
The Congress party’s reaction, said Jaitley, is
given by those who perhaps have no more
than a nodding acquaintance with the subject.
“Data based on facts and on the best global
practices is rejected by the party because it takes
away the last of its surviving arguments
that 'my GDP growth was higher than yours' “, he
taunted.
Exports have performed much worse in the last
four years than over the preceding 10 years.
Exports were only $50 billion in 2002-03, but had
risen to $250 billion in 2010-11, and reached
$315 billion in 2013-14. They have not recovered
to that level even in 2017-18.
Investment to GDP ratio is falling. 2007-08:
36.8%, 2010-11: 34%.
In 2011-12 series; 2013-14: 31.3%, 2014-15:
30.4%, 2015-16: 29.3% and 2016-17: 27.1%.
The slowing growth is consistent with trends in
the Index of Industrial Production (IIP, which
consists of manufacturing, mining, electricity). IIP
had risen from 100 in 2004-05 to 172 in 2013-14
(in the 2004-05 series), and from a base of 100 in
2011-12 (in the later series) to 107 in 2013-14,
but only rose to 125.3 in 2017-18.
Slower industrial production recently is also
suggested by other indicators. In no year
between 2004-05 and 2013-14 did bank credit
grow less than 14% (range 14.1 to 37%). Since
then, in no year has bank credit grown faster
than 10.9% (range 8.2% to 13.9%). Plant load
factor (PLF, or the ratio of actual energy
produced to maximum possible energy that could
have been produced) averaged 68.5% from 2004-
05 to 2013- 14, and until 2011 had never fallen
below 74%. By contrast, the PLF from 2014-15 to
2017-18 has been 57%.
The new data says that the economy grew at an
average 6.7 per cent in four years of the first
term of the UPA government (2005-06 to 2008-
09) as well as in its second term (2009-10 to
2013-14). This is lower than the earlier estimates
of 8.1 per cent and 7 per cent seen during the
first four years of the present NDA government.
Jaitley said the revised numbers were globally
more comparable, as they took into account
a far greater representation of the Indian
economy and were more reflective of its real
state.
“There was a general point about the manner in
which we did the old computations which
was generally very insensitive to current data,”
Mr. Anant added. “There were a number of
ways in which the old series computations simply
did not measure current changes quickly
enough, which the new series in fact does.”
Rajiv Kumar (Vice-Chairman NITI Aayog)
The method that was chosen, and the
statisticians made sure of that, was the method
recommended by the UN System of National
Accounts (SNA) 2008, and that’s the standard
global practice. How can anybody argue
otherwise? If there were political motivations,
then why would the CSO release the Q2 growth
data, which showed slower growth than Q1, just
three days after the back series? There is no
political connection or pressure. The whole
argument that this has become political has no
legs.
The new back series data diverges quite sharply
significantly from the estimates made in a draft
report released by the National Statistical
Commission earlier this year, which showed that
growth during the UPA years crossed 9% on at
least four occasions, and even hit 10.78% in
2010-11. This report pegged the average GDP
growth during UPA-I at about 8.4% and UPA-II at
7.7%. The government, however, was quick to
clarify that this was just a draft report that used
only one of the many methods on offer to
estimate the back series, and that it was not the
final number.
“The Congress party’s reaction is given by those
who perhaps have a nodding acquaintance with
growth during the economic boom’ of
2007-08 has now been downgraded from 9.8 per
cent under the old series to 7.7 per cent under
the new series. This is only a shade higher than
the 6.4 per cent growth registered for the year
2013-14, the last year of the UPA government,
which witnessed considerable turmoil, marred by
Coalgate and the 2G scams, flight of capital and
policy paralysis.
P. Chidambaram
They are a bad joke actually they are worse than
bad joke. The numbers are a result of hatchet
job.
Pronab Sen (Former Chief Statistician of India)
It’s a clear shift that the NITI Aayog got involved
in the generation of the new series. One gets the
suspicion that it was not done by professional
statisticians.
Yes, it clearly has to do with the deflator that is
used, says Ghatak. But the problem is that the
real GDP growth rate in the UPA years under the
original CSO figures looks pretty good too. It does
so under the back series that the NSC (National
Statistical Commission) generated a few months
ago. So, it is not just a matter of inflation being
higher under UPA even though that is true. It has
to do with the specific price index use under the
very latest back series calculations.
There has been a similar slowdown in India’s
foreign trade in the last four years, despite
the subject,” Mr. Jaitley said. “Data based on
facts and on the best global practices is rejected
by the party because it takes away the last of its
surviving arguments ‘my GDP growth was higher
than yours’. The sooner the Congress party
realises that its policy paralysis pushed India into
the Fragile 5, the better it will be for the party
and its leadership.”
A group of 131 chartered accountants have
sought to debunk recent claims made by a group
of economists that the government was
suppressing uncomfortable data and had eroded
the integrity of national data.
“The rebasing exercise which led to the change in
GDP growth rates — the base year was changed
from 2004-05 to 2011-12 — was set in motion by
the UPA,” the statement added. “The
methodology for this was also approved by the
UPA; that the numbers came out under NDA is
just a coincidence.”
The chartered accountants pointed out that the
new GDP series in India was the first that was
compliant with the United Nations guidelines in
the System of National Accounts, 2008, and that
it was more robust than previous iterations
because it sourced data directly from the
corporate sector and had better estimates for
unorganised sector activity.
The accountants highlighted the rate of
infrastructure creation, job creation in the service
sector, implementation of the GST, improvement
in financial inclusion, improvement in the World
Bank’s Ease of Doing Business rankings, and
increase in foreign direct investment as signs of
rapid economic growth. “All this has helped India
become the sixth largest economy in the world,
the fastest ever jump, in the last five years.
acceleration in GDP.
Non-oil merchandise exports grew at a CAGR of
14.1 per cent during FY05-14, against 1.4 per cent
annualised growth in the last four years.
The tax buoyancy, both at the central and state
level, was also greater during the term of
the previous government.
Congress chief spokesperson Randeep Surjewala
had termed the back-series data a “classic” case
where “the operation is successful but the
patient is dead”. He said the Modi government
and its puppet Niti Aayog wanted the people to
believe that two and two equaled eight.
For a country such as India, which is hoping to
aggressively attract foreign investors and sustain
a high-growth momentum, such a controversy is
avoidable. An attempt to score political points
through the numbers game has not only
damaged India's achievement but also distorted
history — both of which should be above politics.
It should be obvious to the government that
independent opinion has rejected the numbers
put out, and the Central Statistics Office (CSO)
has lost its reputation in the process.
“My concern comes out from the fact that this
back series was essentially released by Niti
Aayog, which is a political institution,” Mr. Sen
said. “This has never happened. When a
political institution releases national statistical
data, it puts a huge question mark on the
credibility of the data and the political
independence of the statistical agencies. The
 credibility of CSO has been badly dented, not
because of the data but because of the manner
in which the release has been done.
Whatever the claims about the new GDP
numbers being technically superior to earlier
estimates (and they may well be so), their public
credibility depends on their passing the smell
test, and a reality check, writes T N NINAN.
The need for accurate statistical data and an
unbiased and independent statistical system is
not only important for academic research but
also vitally crucial for policy making. This
government does not consult any statistical
evidence or expert advice to make policies.
Demonetisation was a good example of it but
even the pretence of having some regard to facts
and data has now been given up.

Changes

 Change in the base year

 Change in the methodology from GDP at factor cost to GDP at market price (this is the
international norm and the basis of the current government’s claim that this is what CSO has
followed).
 Change in the method of estimating company output/revenue, which has been done in a much
more detailed manner using new data collected by the Ministry of Corporate Affairs (MCA 21).

Happenings

 Change in Base year was needed because the existing series had become outdated and non-
representative. Unfortunately, these revisions were made when the regimes changed and this
has tended to create a lot of ‘political noise’.
 The policies reap rewards over a period of time and are hard to associate with the regime.
 Employment numbers are even more amorphous and there are two distinct stances — one
based on CMIE, which says things are not good, and the other on EPFO, which is gung-ho about
jobs being created as enrolments increase.
 This back-series issue has generated many more questions than it has answered, says Maitreesh
Ghatak, professor of economics at the London School of Economics. I am not aware of any other
country which uses these back series, sometimes you have to combine old and new series and
there are standard methods of doing that. He says that anyone who deals with statistics knows
that by choosing a suitable base year or suitable price deflator, one can have considerable
leeway in terms of how one can make growth look in a particular sub-period. (A deflator is a
value that allows data to be measured over time in terms of a base period, usually through a
 price index.) This seems a purely political exercise to make growth under the current regime
look good, says Ghatak.
 If the government presumes that the new GDP numbers would create a very positive perception
about its economic performance, it is mistaken. In fact, the revised series will be of interest to a
select few, while the general public will be largely unmoved by such a technical debate. What
would truly interest the general public is the question of how ground realities are being
addressed jobs, exports, more investment, better basic infrastructure, healthcare and
education, to name a few. The kind of flip-flop we are seeing now will erode the credibility of
our economic data, warns Ghatak. We should let the CSO do its job without any political
interference. Meanwhile, India will have to invest a lot more in modernising its data collection
and analysis if it is to hold on to the credibility it enjoys among the global investor community.
Most importantly, it should not be perceived to be tweaking data to score political points, just
months away from the general election.
 Since the unveiling of the new series in 2015, economists from all quarters – ranging from the
right to the left – expressed scepticism about the methodology as GDP estimates were often
belying economic activities as expressed in other common indicators like growth in industrial
credit or motorcycle/two wheeler sales. In April this year, the RBI reportedly has switched back
to the GDP based measurement of growth estimates dumping the GVA methodology, citing
“global best practices”.

Probable Reasons

 The NSS study on employment, which got into the media though not officially released,
highlights the fact that unemployment was at its highest in the last 45 years in 2017-18. One
would relate with this number as the farm sector and SMEs (which have the largest number of
self-employed) had been displaced by demonetisation and GST. These are empirical facts.
 If employment was rising, then it should have gotten reflected in higher consumption or savings,
which was not the case in this period. Everyone is talking of boosting consumption because it
has not been forthcoming.
 MCA 21 is available since 2008 but is probably not available prior to that.
 CSO used a deflator which is different for the back series.
 Combining MCA data with
the ASI data is technically problematic. There is no statistically robust way of seamlessly
linking these two datasets. Their coverage differs significantly.

Some Facts

 If the performance of certain individual sectors was a key indicator of economic growth, then
the UPA years clearly saw better growth than the NDA years. Reports suggest, for example, that
the average annual growth in domestic car sales between fiscals 2005 and 2012 was 13.8 per
cent, while it was just 1.1 per cent between fiscals 2012 and 2018. Two-wheeler sales growth in
the first period was 11.6 per cent as against 7.1 per cent in the second. Growth in corporate tax
 was 21.5 per cent in the first period compared to 10 per cent in the second, while growth in
nonoil exports stood at 18.4 per cent compared to just 1 per cent in the second period.
 GDP under the National Democratic Alliance (NDA) grew at an average of 7.3 per cent in the
last four years, compared to the 6.7 per cent growth rate during the last nine years of the
United Progressive Alliance (UPA) — calculated using the new back series data released by
the Central Statistics Office on Wednesday. This, however, contrasts with the growth rate in the
real sector data under the two governments. For example, Corporate India’s combined revenue
grew at a compound annual growth rate (CAGR) of 18.9 per cent between 2004-05 (FY05) and
2013-14 (FY14), against 5.2 per cent growth under the NDA.
 The combined net profit of a constant sample of 799 listed companies grew at 13.2 per cent
CAGR under the UPA, while it shrunk at an annualised rate of 1.8 per cent in the last four
years.
 Corporate India grew at 2.7 times the underlying GDP growth rate during the UPA years,
and the multiplier declined 0.7x during the NDA.
 The broader stock market also performed better under nine years of the UPA than in the
last four years. BSE Sensex appreciated 14.7 per cent annually between FY05 and FY14,
against 10.2 per cent a year in the last four years.
 “The major takeaway from the data is that the economy doesn’t seem to have recovered from
the global financial crisis as quickly as previously thought,” former Statistics Secretary and Chief
Statistician of India TCA Anant told The Hindu. “That is something we should look much closer
at.”
 According to the CSO, the new series captures value addition in manufacturing better as it uses
the MCA (Ministry of Corporate Affairs) database – which includes activities of industries (like
sales, marketing and R&D undertaken at locations other than the headquarters of the
industries) that were hitherto not considered by ASI (Annual Survey of Industries). Older series
was heavily dependent upon the ASI data to make the final estimates of GDP for industries,
particularly manufacturing.

Complications

 Consider one of the complications introduced by the ASI’s relatively smaller coverage than
the MCA’s. Take a company that has manufacturing establishments across the country.
Such a company may also have non-manufacturing establishments as part of its set-up.
The total corporate GVA should ideally be the sum of manufacturing and nonmanufacturing
establishments. While the MCA would cover both the manufacturing and non-manufacturing
GVA of this company from 2011-12 onwards, the ASI has been found to cover only
manufacturing establishments in such cases. Non-manufacturing GVA inside a manufacturing
corporate enterprise is not captured by it. This GVA, in fact, does not get covered at all as the
service sector surveys also leave it out.
 Some of the GVA in the years before 2011-12 in the back series has escaped estimation
altogether due to such holes in the ASI’s coverage, making the year 2011-12 a point of
discontinuity.
  A structural break can be observed in the back series before and after the year 2011-12. The
upgradation to MCA from ASI data 2011-12 onwards had led to upward revisions. Going
backwards, the revisions are by and large sharply downwards.
 Coming back to the new methodology of estimating the GDP, dramatic changes have been
observed in the values and growth rates of the GDP and its principal constituent sectors.
Ravindra H. Dholakia, who is an external member of the Monetary Policy Committee of the RBI
and an IIM Professor, argued in an article that there are gaps in the new measurement method
of the GDP. The article in the Economic and Political Weekly (1 September 2018 issue) was co-
authored with R. Nagaraj and Manish Pandya.
 EPW article by Dholakia et al states –

“… the article has sought to examine if the CSO’s claims about the shortcomings of ASI are in
fact true. A careful perusal of the ASI’s Instructions Manual provided to field investigators amply
demonstrates that the official contention is largely incorrect... We have then sought to
corroborate these findings with the ASI filled-in questionnaires for select enterprises…
Information gathered from the field supports our contention: the ASI, in fact, includes value
addition in activities outside of factories such as company headquarters and sales force.”

Some suggestions

 There is another significant decision the government should take: It should withdraw the
announcement regarding the back series of the GDP data with 201112 as the base year. The
back series provided the GDP growth data from 2004-05 to 2010-11. Ordinarily, this would be a
welcome development as base-year revisions and back-series calculations provide a sense of
continuity for economic analysis. However, the latest back-series data, regardless of the
technical sophistication involved, seems to run contrary to all the other available evidence for
the years in question. The data does not align with that from the real economy — tax revenues,
credit growth, trade performance, corporate sales and profits, or indeed the level of
investment in the economy. This reflects poorly on the ability of the back series to accurately
reflect what happened during these 10 years. What further undermines the credibility of the
back series is that the decade in question coincides with the tenure of the United Progressive
Alliance.
 If the government values the credibility of India’s growth data, it should promptly withdraw the
back series. Further, the CSO should take on the task of recalculation independent of the NITI
Aayog. To regain public trust, the methodology should be discussed in advance with known
experts in the field, including people who have headed the CSO and statistical commission, etc.
in the past, so that it does not invite controversy or fly in the face of other facts and numbers
that are publicly available.