Arvind Subramanian, now at Harvard and the Petersen Institute for International Economics, was the former Chief Economic Adviser (CEA) to the Indian government from October 2014 to June 2018. He has reignited the simmering controversy over India’s GDP numbers.
For some time now, doubts have been raised about the new GDP series produced by the Indian government. It was unveiled in 2015 by the current Modi-led NDA (National Democratic Alliance) government, but the revisions go back to the Congress-led UPA (United Progressive Alliance) government. It was based on a revised methodology and used 2011-2012 as the base year unlike its predecessor which used 2004-2005 as the base year. Such revisions are a normal part of updating the national accounts in any country. So, why did it become so controversial?
There is a sizeable India-specific literature that claims that these revisions led to unintended consequences entailing GDP mis-estimation and thus distorting the real GDP growth rates. Given that economic growth is the primary metric by which governments across the world make the claim of economic success (or lack of it), one can appreciate the gravity of these issues. In an Indian context, this acquires a great deal of salience because of the oft-cited claim that India is one of the fastest growing economies in the world and will remain so for some time. Indeed, the latest projections by IMF show India as a star performer relative to China and other emerging economies – see Figure 1.
Figure 1: Indian growth in comparative perspective
Subramanian has now spoiled the narrative of rapid and unending Indian growth. Using cross-country regressions, he argues that India was a significant ‘outlier’ in the 2011-2012 to 2016-17 period, but not in previous periods. He uses that stylized evidence – and a host of analytical arguments and complementary evidence – to suggest a probable growth rate of about 4.5% over the 2011-2012 period rather than the officially estimated 7% over the same period. Such a proclamation from a former CEA must have riled his erstwhile political masters who only a few weeks ago unveiled the vision of India becoming a US$5 trillion economy within the next 5 years. Of course, this implies a ‘wildly unrealistic’ growth rate of 14% per annum to reach that goal, but that vision appears even more of a fantasy given Subramanian’s claims.
Not surprisingly, economists affiliated with the Indian government have attacked his claims and have sought to undermine his allegations on analytical and methodological grounds. Bibek Deb Roy, who heads Prime Minister Narendra Modi’s Economic Advisory Council (PMEAC), lamented that the ‘…moment you put out headlines that say that India’s GDP was overestimated …and India’s real GDP growth rate over that period was 4.5%, it tends to get picked up by international newspapers and magazines. It does great damage to the country and I think any former chief economic advisor, including Dr Arvind Subramanian, should be much more careful’.
It is understandable that Subramanian’s current claims about India’s GDP growth would be questioned. He did, after all, work with the same data and never questioned them before, at least not openly. In his defence, Subramanian argues that he expressed doubts about India’s rapid growth, most notably in the annual Economic Survey of 2016-2017 (volume 2) of the Ministry of Finance which he had to sign off in his capacity as CEA. This is hidden in a few paragraphs (p.27) in a tome of a few hundred words. The purpose was show that India’s rapid growth over 2015 and 2017 occurred in a milieu of mediocre performance in exports, investment and credit growth. This was unique among countries of the world and not sustainable in the absence of countervailing reforms and policy actions. There is no hint in those observations of questioning the GDP data.
Ironically, another Indian scholar who lacks the international profile of Subramanian, Rajeswari Sengupta, made a rather similar claim that ‘real GDP is growing at 5%, not 7.1%’ about three years ago. It did not attract the kind of attention – either locally or internationally – that greeted Subramanian’s claims. Sengupta simply adjusted the deflator that that the Indian Central Statistical Office (CSO) uses to selected sectoral data to derive real GDP from nominal numbers to arrive at her conclusion.
The controversy over India’s GDP numbers is unlikely to fade away. Whether Subramanian’s contribution has advanced the nature of the debate remains to be seen. At the very least, it will raise renewed questions about the preoccupation with using apparently unreliable growth statistics as the primary metric to judge economic performance, especially when there is an employment crisis gripping the Indian labour market.
Iyanatul Islam is an Adjunct Professor at the Griffith Asia Institute and former Branch Chief, ILO, Geneva.
