India Fudging GDP Figures to Look Better Than China?

Indian government now claims that the country's GDP grew by 6.9% in 2013-14, well above the 4.7% growth the country had announced earlier.

Based on the latest methodology,  it is claimed that the Indian economy expanded 7.5 percent year-on-year during the last quarter, higher than 7.3 percent growth recorded by China in the latest quarter, making it the fastest growing major economy in the world, according to Reuters. Is it wishful thinking to make Indian economy look better than China's?

India GDP Revisions. Source: Financial Times

The GDP revisions have surprised most of the nation's economists and raised serious questions about the credibility of government figures released after rebasing the GDP calculations to year 2011-12 from 2004-5. So what is wrong with these figures? Let's try and answer the following questions:

1. How is it possible that the accelerated GDP growth in 2013-14 occurred while the Indian central bankers were significantly jacking up interest rates by several percentage points and cutting money supply in the Indian economy?

2. Why are the revisions at odds with other important indicators such as lower industrial production and trade and tax collection figures?  For the previous fiscal year, the government’s index of industrial production showed manufacturing activity slowing by 0.8%. Exports in December shrank 3.8% in dollar terms from a year earlier.

3. How can growth accelerate amid financial constraints depressing investment in India?  Indian companies are burdened with debt and banks are reluctant to lend.

4. Why has the total GDP for 2013-14 shrunk by about Rs. 100 billion in spite of upward revision in economic growth rate? Why is India's GDP at $1.8 trillion, well short of the oft-repeated $2 trillion mark?

Questions about the veracity of India's official GDP figures are not new. These have been raised by many top economists. For example,  French economist Thomas Piketty argues in his best seller "Capital in the Twenty-First Century that the GDP growth rates of India and China are exaggerated.  Picketty writes as follows:

"Note, too, that the very high official growth figures for developing countries (especially India and China) over the past few decades are based almost exclusively on production statistics. If one tries to measure income growth by using household survey data, it is often quite difficult to identify the reported rates of macroeconomic growth: Indian and Chinese incomes are certainly increasing rapidly, but not as rapidly as one would infer from official growth statistics. This paradox-sometimes referred to as the "black hole" of growth-is obviously problematic. It may be due to the overestimation of the growth of output (there are many bureaucratic incentives for doing so), or perhaps the underestimation of income growth (household have their own flaws)), or most likely both. In particular, the missing income may be explained by the possibility that a disproportionate share of the growth in output has gone to the most highly remunerated individuals, whose incomes are not always captured in the tax data." "In the case of India, it is possible to estimate (using tax return data) that the increase in the upper centile's share of national income explains between one-quarter and one-third of the "black hole" of growth between 1990 and 2000. "

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Comment by Riaz Haq on May 8, 2019 at 9:13am

#Modi caught fudging #India's #GDP. Study by National Sample Survey Office (NSSO) finds that as much as 36% of companies that are part of MCA-21 database of companies and are used in India’s GDP calculations could not be traced or were wrongly classified. https://www.livemint.com/news/india/new-gdp-series-faces-fresh-ques...

A third of the firms in MCA-21 (Ministry of Corporate Affairs) database used to calculate GDP found dodgy
Results from the MCA-21 database survey were so disappointing that two reports based on it had to be junked

A key database introduced in India’s new gross domestic product (GDP) series has now been found to be full of holes, raising fresh questions over the controversial and contested GDP numbers in Asia’s third-largest economy.

A study conducted by the National Sample Survey Office (NSSO) in the 12 months ended June 2017 and released last week has found that as much as 36% of companies that are part of MCA-21 database of companies and are used in India’s GDP calculations could not be traced or were wrongly classified.

The results were so disappointing that two detailed reports based on the survey had to be junked. It is worth noting that these companies were deemed as “active companies" by the ministry of corporate affairs (MCA), which includes any company that has filed returns at least once in the past three years on its list of active firms.

Statisticians say the use of the untested database in India’s national accounts also raises troubling questions about the decline of the Central Statistics Office (CSO), which was once a globally renowned institution, and the reliability of India’s official statistics.

“This is a devastating blow for CSO," said R. Nagaraj, a professor at the Indira Gandhi Institute of Development Research in Mumbai. “Some of us had repeatedly asked CSO officials to verify the MCA-21 numbers before using them in national accounts, but they finalized the new series without adequate scrutiny and debate."

The key change in the new GDP series launched in 2015 was the use of MCA-21, which CSO sourced from MCA. Even at the time it was being introduced in the national accounts calculations, several economists had raised questions on this issue (see “The truth behind India’s new GDP numbers", Mint, 2 April 2015). Nagaraj was among the first to raise red flags on this.

Critics argued that the database includes many fictitious or shell firms that exist only on paper. They also said the methodology used to plug in the MCA-21 numbers in the national accounts tends to lend an overestimation bias in the GDP numbers. They demanded the MCA-21 data be released to researchers and the public so that the unit-level data could be examined. Even those who thought the new GDP series represented a great methodological leap by CSO made the same demand.

So far, India’s national accounts statisticians at CSO have defended the use of the new database although they stopped short of making it public. But now, their own colleagues from NSSO have warned about the presence of a large number of ghost firms in the database.

NSSO got into the act while carrying out a survey on the service sector (74th round), supposed to be a first-of-its-kind survey on the service sector. The MCA-21 database was used as part of the sampling frame for the survey as it had addresses and other details of firms. Business registers in states that had such registers and data from the last economic census were the other parts of the sampling frame.

This survey strategy was approved by the National Statistical Commission (NSC) two years ago, and later even a tabulation plan for the two reports that were to be generated on the basis of this survey was approved by it.

Comment by Riaz Haq on May 9, 2019 at 10:21am

#India's incredulous data: #IMF chief economist Gita Gopinath has raised the issue of “transparency” with #Indian officials in data collection and, in particular, measurement of the #GDP deflator - the adjusted inflation rate used to estimate real GDP https://reut.rs/2vL2mcf

Economists and investors are increasingly showing that they have little or no confidence in India’s official economic data – presenting whoever is elected as the next prime minister with an immediate problem.

There have been questions for many years about whether Indian government statistics were telling the full story but two recent controversies over revisions and delays of crucial numbers have taken those concerns to new heights.

The government itself has admitted there are deficiencies in its data collection.

A study conducted by a division of the statistics ministry in the 12 months ending June 2017 found that as much as 36 percent of the companies in the database used in India’s GDP calculations could not be traced or were wrongly classified.

But the ministry said there was no impact on GDP estimates as due care was taken to adjust corporate filings at the aggregate level.

Last December, the government held back the release of jobs data but an official report leaked to an Indian newspaper showed the unemployment rate had touched its highest level in 45 years.

Economists and investors are now voting with their feet – by using alternative sources of data and in some cases creating their own benchmarks to measure the Indian economy.

Ten economists and analysts at banks, think-tanks and foreign funds interviewed by Reuters said they were moving to use alternative data sources, or at least official data of a different kind.

Among the numbers they prefer are fast-moving indicators like car sales, air and rail cargo levels, purchasing managers’ index data, and proprietary indices created by the institutions themselves to track the economy.

Many economists said they were stunned when the government upwardly revised GDP growth for 2016/17 to 8.2 percent from 6.7 percent, although the demonetization of high value notes hit businesses and jobs in that financial year.

“Our response has been to spend time developing an Indian Activity Index, which takes a range of time series data that in the past were strongly correlated with real GDP growth and extract the common signal from them,” said Jeremy Lawson, chief economist at Aberdeen Standard Investments, which manages more than $700 billion in assets.

The preliminary evidence from the index, which includes components like car sales, air cargo and purchasing managers’ index data suggests the government has over-estimated GDP growth, he said.

“Our index would suggest that there was stable growth, rather than the rapid acceleration suggested by the GDP figures,” he said, referring to three years of data from 2014.

Even those close to the government have said the lack of accuracy in the official data makes it much more likely that authorities will miss major swings in activity and be unable to react quickly to head off a crisis. It is also a problem for investors who may be misled into thinking the economy is more robust than it really is.

Comment by Riaz Haq on July 12, 2019 at 9:54am

#India’s ex chief economist Arvind Subramanian to produce new paper to defend his claim India’s #GDP is overestimated. Actual growth was just 4.5% from 2011 to 2017. #Modi #BJP #economy

https://theprint.in/economy/arvind-subramanian-to-produce-new-paper...

Former chief economic adviser Arvind Subramanian is set to produce another working paper on GDP estimation, as he looks to address criticism about his claim that India’s GDP was overestimated by 2.5 percentage points.

Subramanian’s previous paper, released last month, had pointed out that India may have only grown at an average of 4.5 per cent in the period 2011-12 and 2016-17, and not 7 per cent as suggested by official estimates.

Using various real sector indicators like exports, credit growth, freight rates and factory output, Subramanian had pointed out that these indicators declined significantly post-2011, but GDP growth rate was hardly affected.

Subramanian’s use of real indicators to measure the GDP came in for severe criticism from economists and statisticians. The Prime Minister’s Economic Advisory Council had pointed out that the methodology used by Subramanian overlooked tax data and didn’t have adequate services sector representation. The council said the correlation between the indicators and GDP growth could change over time.

Subramanian’s defence
Speaking at an event organised by the National Council of Applied Economic Research, Subramanian defended his GDP overestimation claims, saying his framework attempted “not to estimate but to validate GDP growth estimates”.

Discussing a yet to be released follow-up paper to his earlier study, Subramanian said: “India’s overall GDP deflator is substantially underestimated.”

The average differential between GDP deflator and Consumer Price Index (CPI) has increased considerably between the 2002-11 and 2012-16 periods, with CPI exceeding GDP deflator by 0.6 percentage points pre-2011 and by 2.9 percentage points post it, he noted. This underestimation, he said, could be seen as linked to the real GDP growth rate overestimation.

Both GDP deflator and CPI are measures of inflation, and GDP deflator is used as a divisor to estimate real GDP from its nominal counterpart.

Reacting to the arguments made in the past few weeks — that GDP could have grown as a result of government policies or a productivity surge — he went about demonstrating that none of these factors actually explain the high official GDP growth rates post-2011.

Acknowledging that some of the Modi government’s reforms like GST, Insolvency and Bankruptcy Code and welfare schemes like cooking gas and toilets have been truly transformative, he said that they cannot adequately explain the growth in GDP.

He also rejected the productivity surge argument. “It is unlikely that a productivity surge could have taken place under UPA-2 with its considerable policy collapse and a mini-crisis prevailing,” he said.

He identified India’s twin balance sheet problem — the NPA crisis facing its banks and the huge debt burden of its corporates — as one of the major shock events that may have impeded growth.

Comment by Riaz Haq on June 1, 2022 at 7:48am

Aakar Patel
@Aakar__Patel
chief economic advisors a thread

first one (2014-2018) concluded gdp growth was off by 2%. that meant that before pandemic, after slowing for 9 consecutive quarters (2 years and 3 months starting jan 2018) india gdp was growing at only 2%

govt shrugged


https://twitter.com/Aakar__Patel/status/1531851911854714880?s=20&am...

India's GDP growth overestimated by 2.5%, says former chief economic advisor


A new study by former chief economic advisor Arvind Subramaniam says the expansion was overestimated between 2011 and 2017

Rather than growing at about 7% a year in that period, growth was about 4.5%, according to the research paper

Read more at:
http://timesofindia.indiatimes.com/articleshow/69738363.cms?utm_sou...

----------------



Aakar Patel
@Aakar__Patel
his successor (2018-21) asked govt to release its own survey which showed indians were consuming less (incl on food) in 2018 than they were in 2012.

govt has not released survey


https://twitter.com/Aakar__Patel/status/1531852392399900672?s=20&am...

Economic adviser prod to release consumer expenditure survey report
After the demand was made by Subramanian, the government is at present considering its release

https://www.telegraphindia.com/india/economic-adviser-prod-to-relea...

A year after the NDA government withheld the release of a consumer expenditure survey for suspected discomfort over unfavourable findings, its chief economic adviser Krishnamurthy Subramanian has demanded its release, a minister has informed Parliament.

In response to a question in the Rajya Sabha by Congress members L. Hanumanthaiah and G.C. Chandrasekhar who wanted to know if the chief economic advisor had demanded to make the survey report public, minister of state for statistics and programme implementation Rao Inderjit Singh said in a written reply: “Yes Sir”.


The National Statistics Office (NSO) under the ministry of statistics and programme implementation had conducted an all-India survey on household consumer expenditure from the period July 2017 to June 2018. But the ministry decided not to release the report citing a higher divergence with the administrative data. According to a report in Business Standard, the survey found a fall in consumer spending for the first time in more than four decades.

After the demand was made by Subramanian, the government is at present considering to release the report.

“The ministry has followed a rigorous procedure for vetting of data and reports which are produced through surveys. The results of this survey were examined and it was observed that there was a significant variation in the levels in the consumption pattern as well as in the direction of the change while comparing with other administrative data sources. The matter is being looked into and finalisation of the results of the Consumer Expenditure Survey 2017-18 is under consideration,” the minister said.

Comment by Riaz Haq on April 21, 2023 at 6:14pm

The Economist exposes Modi's fudged numbers to show lower multidimensional poverty.

It deals with the definitions used by the Modi government......such as the definitions of village electrification and open defecation.


Modi government claims the entire village is electrified with "only public buildings and 10% of households" electrified.


Modi gov't also calls villages "open defecation free" even when millions of people are still defecating in the open.

All of this false "multi-dimensional" data manufactured by Modi gov't is used by the UNDP report. That's reflected in a dramatic reduction in India's "multidimensional poverty" on Modi's watch.

https://www.economist.com/asia/2023/01/05/postponing-indias-census-...

"Narendra Modi often overstates his achievements. For example, the Hindu-nationalist prime minister’s claim that all Indian villages have been electrified on his watch glosses over the definition: only public buildings and 10% of households need a connection for the village to count as such"

"And three years after Mr Modi declared India “open-defecation free”, millions of villagers are still purging al fresco. An absence of up-to-date census information makes it harder to check such inflated claims. It is also a disaster for the vast array of policymaking reliant on solid population and development data"

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