Journal » Vol. 51, Issue No. 24, 11 Jun, 2016
The latest data on India's GDP raises more questions than provides answers.
The origin of this phrase is shrouded in mystery. American author Mark Twain popularised it and attributed it to British Prime Minister Benjamin Disraeli but the sentence, “There are three kinds of lies: lies, damn lies and statistics,” cannot be found in any of Disraeli’s works. In India too, what is put out by the government as figures of rates of growth of the country’s gross domestic product (GDP) has become rather mysterious and confusing. Prime Minister Narendra Modi and his cheerleaders have been shouting from the rooftops that this is the fastest-growing major economy in the world, something we are all supposed to be proud of. Truth be told, there are few who are euphoric about the current state of the Indian economy. What is worse is that analysts and commentators who have crunched the numbers put out by the Central Statistics Office (CSO) have raised doubts about their veracity. The rosy picture being sought to be portrayed by the government’s spin doctors may end up harming its own interests; reminiscent of how the “India Shining” campaign backfired on the Bharatiya Janata Party government led by Atal Behari Vajpayee in 2004.
The latest estimates of the CSO indicate that India’s GDP in the financial year that ended on 31 March 2016 stood at 7.6% (against 7.2% in 2015–16) with an unexpected surge of 7.9% in the January–March 2016 quarter. Of the GDP growth of 7.6% in 2015–16, as much as 2.4 percentage points were accounted for under the head “discrepancies” against 0.1 percentage points in the previous year. In other words, if one excludes the discrepancies, the rates of growth of GDP would be 7.1% in 2014–15 and 5.2% in 2015–16—nothing to get particularly excited about. Even if one concedes that discrepancies are inevitable while compiling national accounts, especially when new and ostensibly more “accurate” systems of statistics are being sought to be put in place, there are a number of crucial questions that remain unanswered.
Consider a few glaring anomalies in the GDP data. The manufacturing sector has grown by 8.1% in current prices in 2015–16. Yet the index of industrial production (IIP) for this period registered a rise of 2.4%. This has been a year when exports have declined continuously month after month. One of the noteworthy changes made by the CSO in its new methodology for calculating GDP relates to the use of data on company finances using the e-governance initiative database of the Ministry of Corporate Affairs (MCA 21) that has been used to supplement the information in the Annual Survey of Industries. This had radically altered the growth numbers for the manufacturing sector. For instance, the old series reported 1.1% growth in manufacturing in 2012–13 which gets pushed up to 6.2% using the new method. The comparable figures for 2013–14 have gone up from (-)0.7% to 5.3%. For the last two full years for which data has been compiled, while the IIP has reportedly grown by 2.8% in 2014–15 and 2.4% in 2015–16, the new national income data (at 2011–12 prices) places these figures at 5.5% and 9.5% respectively. The government has claimed that better coverage of manufacturing data of small and medium enterprises and superior estimates of value addition have been captured in the new methodology of calculating GDP but independent experts are far from convinced by such explanations of the huge rise in growth rates.
The CSO keeps updating and revising its data. It starts with putting out advanced estimates which become provisional estimates (PE) which, in turn, become revised estimates (RE) that are also changed more than once before the final figures are arrived at. If one compares apples with apples and not with oranges, the story is quite different from what the government would want us to believe. For instance, the latest PE of GDP growth in 2015–16 has been put at 7.6% over the first RE of 2014–15. If, however, we compare PE of 2015–16 with PE of 2014–15, the GDP growth figure comes down to a less impressive 6.6%. If we compare the PE of the real GDP growth figure for the fourth quarter of 2015–16 with the corresponding quarter’s PE in 2014–15, the proportion plummets from 7.9% to only 4.8%.
There are other misgivings about the CSO’s data. If the government is serious about allaying the apprehensions of many experts, it should appoint an independent committee of experts to examine the new methodology. It is just not analysts and observers who have expressed doubts about the numbers put out by the CSO. In the past, the governor of the Reserve Bank of India as well as the chief economic adviser in the Ministry of Finance have acknowledged that they have doubts about the veracity of the data. Window dressing may yield short-term political benefits. But the damage that fudged figures can cause to the credibility and the image of the government is potentially huge.
The Economic & Political Weekly (EPW) has published a number of articles on this topic over the last several months. In fact, EPW has been in the forefront questioning the veracity of government data on the country’s national accounts. Way back in 1972, the finance minister of West Bengal Ashok Mitra had written in this publication a column titled “The New Obfuscators” in which he had compared the Brahmins of yesteryear to today’s economists. The former used to act as a buffer between the king and the masses to tell them that things are not all that bad. Particular government economists and statisticians have become modern-day spin doctors who, unlike the Brahmins of medieval times, want us to believe the economy is doing much better than it actually is, in order to please their political masters. But in playing along with the sycophants of the ruling regime, they end up fooling only the gullible few.
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The latest data on India's GDP raises more questions than provides answers.
The origin of this phrase is shrouded in mystery. American author Mark Twain popularised it and attributed it to British Prime Minister Benjamin Disraeli but the sentence, “There are three kinds of lies: lies, damn lies and statistics,” cannot be found in any of Disraeli’s works. In India too, what is put out by the government as figures of rates of growth of the country’s gross domestic product (GDP) has become rather mysterious and confusing. Prime Minister Narendra Modi and his cheerleaders have been shouting from the rooftops that this is the fastest-growing major economy in the world, something we are all supposed to be proud of. Truth be told, there are few who are euphoric about the current state of the Indian economy. What is worse is that analysts and commentators who have crunched the numbers put out by the Central Statistics Office (CSO) have raised doubts about their veracity. The rosy picture being sought to be portrayed by the government’s spin doctors may end up harming its own interests; reminiscent of how the “India Shining” campaign backfired on the Bharatiya Janata Party government led by Atal Behari Vajpayee in 2004.
The latest estimates of the CSO indicate that India’s GDP in the financial year that ended on 31 March 2016 stood at 7.6% (against 7.2% in 2015–16) with an unexpected surge of 7.9% in the January–March 2016 quarter. Of the GDP growth of 7.6% in 2015–16, as much as 2.4 percentage points were accounted for under the head “discrepancies” against 0.1 percentage points in the previous year. In other words, if one excludes the discrepancies, the rates of growth of GDP would be 7.1% in 2014–15 and 5.2% in 2015–16—nothing to get particularly excited about. Even if one concedes that discrepancies are inevitable while compiling national accounts, especially when new and ostensibly more “accurate” systems of statistics are being sought to be put in place, there are a number of crucial questions that remain unanswered.
Consider a few glaring anomalies in the GDP data. The manufacturing sector has grown by 8.1% in current prices in 2015–16. Yet the index of industrial production (IIP) for this period registered a rise of 2.4%. This has been a year when exports have declined continuously month after month. One of the noteworthy changes made by the CSO in its new methodology for calculating GDP relates to the use of data on company finances using the e-governance initiative database of the Ministry of Corporate Affairs (MCA 21) that has been used to supplement the information in the Annual Survey of Industries. This had radically altered the growth numbers for the manufacturing sector. For instance, the old series reported 1.1% growth in manufacturing in 2012–13 which gets pushed up to 6.2% using the new method. The comparable figures for 2013–14 have gone up from (-)0.7% to 5.3%. For the last two full years for which data has been compiled, while the IIP has reportedly grown by 2.8% in 2014–15 and 2.4% in 2015–16, the new national income data (at 2011–12 prices) places these figures at 5.5% and 9.5% respectively. The government has claimed that better coverage of manufacturing data of small and medium enterprises and superior estimates of value addition have been captured in the new methodology of calculating GDP but independent experts are far from convinced by such explanations of the huge rise in growth rates.
The CSO keeps updating and revising its data. It starts with putting out advanced estimates which become provisional estimates (PE) which, in turn, become revised estimates (RE) that are also changed more than once before the final figures are arrived at. If one compares apples with apples and not with oranges, the story is quite different from what the government would want us to believe. For instance, the latest PE of GDP growth in 2015–16 has been put at 7.6% over the first RE of 2014–15. If, however, we compare PE of 2015–16 with PE of 2014–15, the GDP growth figure comes down to a less impressive 6.6%. If we compare the PE of the real GDP growth figure for the fourth quarter of 2015–16 with the corresponding quarter’s PE in 2014–15, the proportion plummets from 7.9% to only 4.8%.
There are other misgivings about the CSO’s data. If the government is serious about allaying the apprehensions of many experts, it should appoint an independent committee of experts to examine the new methodology. It is just not analysts and observers who have expressed doubts about the numbers put out by the CSO. In the past, the governor of the Reserve Bank of India as well as the chief economic adviser in the Ministry of Finance have acknowledged that they have doubts about the veracity of the data. Window dressing may yield short-term political benefits. But the damage that fudged figures can cause to the credibility and the image of the government is potentially huge.
The Economic & Political Weekly (EPW) has published a number of articles on this topic over the last several months. In fact, EPW has been in the forefront questioning the veracity of government data on the country’s national accounts. Way back in 1972, the finance minister of West Bengal Ashok Mitra had written in this publication a column titled “The New Obfuscators” in which he had compared the Brahmins of yesteryear to today’s economists. The former used to act as a buffer between the king and the masses to tell them that things are not all that bad. Particular government economists and statisticians have become modern-day spin doctors who, unlike the Brahmins of medieval times, want us to believe the economy is doing much better than it actually is, in order to please their political masters. But in playing along with the sycophants of the ruling regime, they end up fooling only the gullible few.
Comments
(+) Show
EPW looks forward to your comments. Please note that comments are moderated as per our comments policy. They may take some time to appear. A comment, if suitable, may be selected for publication in the Letters pages of EPW.
Search form
Search - See more at: http://www.epw.in/journal/2016/24/editorials/lies-damn-lies-and-statistics.html#sthash.ZXfQNaj6.A8vMqv5t.dpuf
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