India's GDP growth figures are hard to trust - Nikkei Asian Review https://asia.nikkei.com/Opinion/India-s-GDP-growth-figures-are-hard-to-...

OPINION

Narendra Modi needs to ensure the country's statistics are

accurate

William Pesek
JULY 29, 2019 03:00 JST

Modi should make full transparency a top priority. © Hindustan Times/Getty Images

Indian Prime Minister Narendra Modi faces enough problems supporting a

flagging economy as his second term begins. Yet he now confronts
questions about whether growth in the first was nearly as strong as official
figures claimed.

1 of 7 7/30/2019, 4:17 PM
India's GDP growth figures are hard to trust - Nikkei Asian Review https://asia.nikkei.com/Opinion/India-s-GDP-growth-figures-are-hard-to-...

Modi's first term, from 2014 to 2019, brought India a growth spurt in gross
domestic product of 7%-plus each year, capturing the imagination of
investors around the globe. Steps to open protected sectors -- aviation,
defense and insurance -- pushed foreign direct investment to more than
$60 billion in 2017-18, from $45 billion three years earlier.

The second term, though, is beginning with a hangover. Growth is slowing

sharply, much lower than expected at 5.8% in the first quarter.
Unemployment is now at a multiyear high. And a near 16% fall in car sales
in June has economists speculating about bigger downward movements to
come.

Yet the biggest credibility question facing Modinomics comes as

economists debate whether things were ever as good as Modi claims.

One, in particular, is making headlines: Arvind Subramanian, a former

International Monetary Fund staffer who until last year was the Modi
government's chief economic adviser. Subramanian has claimed Indian
GDP growth averaged closer to 4.5% between 2012 and 2017, not the
average 7% range official data suggest.

Subramanian's doubts centered on changes to the way New Delhi

incorporates manufacturing output into top-line GDP. He found a "deep
puzzle" presented by rapid national growth that does not jibe with actual
trends in investment rates, exports, corporate profits, credit financing and
"probably" consumption, too.

2 of 7 7/30/2019, 4:17 PM
India's GDP growth figures are hard to trust - Nikkei Asian Review https://asia.nikkei.com/Opinion/India-s-GDP-growth-figures-are-hard-to-...

Arvind Subramanian found a "deep puzzle" presented by rapid national growth. © Reuters

How, for example, did India grow above 7% in 2016 after the government's
chaotic move to pull all high-denominated currency bills out of circulation?
A similar question could be asked about as U.S. President Donald Trump's
trade war upended global supply chains in 2018.

The bottom line, Subramanian said, is that Asia's third-biggest economy is

advancing "solidly but not spectacularly."

This is not the first time New Delhi has faced doubts about data, more
familiar to China-watchers querying Beijing's figures. A 2015 move to
revise GDP figures higher inspired some headshaking. India's employment
data have long raised questions. Investors suspect state-owned banks have
far more bad loans than official figures admit.

More and more foreign outfits, including Goldman Sachs and Nomura
Holdings, are devising their own models to advise clients on India's zigs
and zags. In January, for example, Nomura questioned the conventional
wisdom that India will easily overtake the U.K. to become the world's fifth
biggest economy.

3 of 7 7/30/2019, 4:17 PM
India's GDP growth figures are hard to trust - Nikkei Asian Review https://asia.nikkei.com/Opinion/India-s-GDP-growth-figures-are-hard-to-...

Team Modi is working feverishly to dismiss Subramanian's assertion,

although its place of publication seems to support him too. That Harvard's
Center for International Development would circulate such a report has
forced Modi's inner circle to respond. Modi's Economic Advisory Council
says doubts about GDP "would not stand the scrutiny of academic or policy
research standards" and lack "rigor."

If Subramanian's is right, it would mean "any company, any investor"

might have to rethink the trajectory of India's economy, said Rakesh
Mohan, a former deputy central bank governor.

That goes doubly for Modi's much-celebrated reform drive. The data-
accuracy debate is a microcosm of concerns that Modi's revival plan is less
about structural change than pumping up GDP.

Granted, Modi has put some important wins on the scoreboard. Along with
increasing foreign-investment quotas, the 2016 passage of a national goods
and services levy was a big deal. It was the biggest tax reform since 1947,
meant to increase efficiency and reduce opportunities for graft.

In just two years between 2017 and 2019, India's ranking in World Bank's
Ease of Doing Business survey jumped 53 places to 77th. Yet Modi largely
coasted over the last couple of years. He shelved the more audacious
upgrades he telegraphed in 2014: revising labor, land and corporate tax
laws. Big talk of opening the retail sector to global operators amounted to
little.

Nor have deregulatory pledges kept pace with Modi's "Make in India" plan
to siphon factories away from China. Take foreign-direct investment,
touted by Modi boosters as a big success. According to the World Bank,
FDI into India was just 1.5% of GDP in 2017 versus 6.3% in Vietnam and
3% in Malaysia.

4 of 7 7/30/2019, 4:17 PM
India's GDP growth figures are hard to trust - Nikkei Asian Review https://asia.nikkei.com/Opinion/India-s-GDP-growth-figures-are-hard-to-...

Earlier this month, finance minister Nirmala Sitharaman outlined new tax
incentives for global technology companies. The hope is to increase India's
share of solar panel, semiconductor and smartphone manufacturing.
Modi's government also plans to convene summits with overseas tech
gurus to win their trust.

India, though, needs to get the basics rights, too. Chronic shortfalls in
domestic savings and investment leave it too reliant on global capital, and
vulnerable to cash leaving when global markets grow turbulent, as they are
today.

The last thing New Delhi needs in 2019 is doubts about its data ecosystem.
India is gearing up for its first-ever sovereign bond offering in overseas
markets, one that could raise $10 billion. Any uncertainty about the
economy or transparency could hamper demand.

Modi 2.0 should make full transparency a top priority. And that means
ensuring investors trust the numbers. Granted, coming up with a GDP
snapshot every few months capturing the collective experiences of 1.3
billion people is a herculean task. The vastness of India's "informal
economy" makes it even harder. A 2017 study by the Association of
Chartered Certified Accountants estimated it is 17% of GDP.

More money might help. Among Subramanian's main gripes is that New
Delhi spends just 0.2% of its annual budget collecting data. India has not
got around to releasing regular figures on retail sales, housing or other vital
sectors.

That leaves analysts to fill the void combing data on electricity use, freight
and transportation trends, sales of cars and scooters, credit shifts and
corporate investment decisions. Or, coming up with their own.

5 of 7 7/30/2019, 4:17 PM
India's GDP growth figures are hard to trust - Nikkei Asian Review https://asia.nikkei.com/Opinion/India-s-GDP-growth-figures-are-hard-to-...

In May, the prime minister, recently reelected, said: "This is not a victory of
Modi, it is the victory of people who are desperate for honesty in the
system." What better place for Modi 2.0 to start than building trust in the
numbers underpinning it?

William Pesek is an award-winning Tokyo-based

journalist and author of "Japanization: What the
World Can Learn from Japan's Lost Decades."

Sign up to our newsletters to get our best stories delivered straight to your inbox.

Email address

Sign Up

SPONSORED CONTENT About Sponsored Content

6 of 7 7/30/2019, 4:17 PM
India's GDP growth figures are hard to trust - Nikkei Asian Review https://asia.nikkei.com/Opinion/India-s-GDP-growth-figures-are-hard-to-...

7 of 7 7/30/2019, 4:17 PM