The growth numbers have come back to haunt the Centre with former Chief Economic Advisor (CEA) Arvind Subramanian questioning the change in GDP calculation methods and numbers effected last year.
“A variety of evidence suggests that the methodology changes introduced for the post-2011 GDP estimates led to an over-estimation of GDP growth”, he said.
Subramanian has suggested that India’s gross domestic product (GDP) growth estimate has been overestimated by around 2.5 percentage points between 2011-12 and 2016-17, a period that covers the years during both the UPA and the NDA governments.
The adoption of a new GDP series to measure the country’s economic growth, months after the government itself slashed previous UPA-era GDP growth rate for 2010-11 from the earlier estimated 10.3 pc to 8.5 pc, has fuelled controversy.
Subramanian said: “This paper shows that India changed its data sources and methodology for estimating real gross domestic product (GDP) for the period since 2011-12. This change has led to a significant overestimation of growth.”
“Official estimates place annual average GDP growth between 2011-12 and 2016-17 at about 7 pc. We estimate that actual growth may have been about 4.5 pc with a 95 pc confidence interval of 3.5 - 5.5 pc,” the research paper added.
The informal sector accounts for 30 pc of manufacturing gross value added (GVA - excludes taxes) and hence about 5 pc of overall GVA. According to the paper, this proxy might be reasonable in normal times. But it likely overestimated growth during a period when major policy actions, “demonetisation and GST,” disproportionately impacted the informal sector. Two important policy implications follow, says the ex-CEA, adding that the entire national income accounts estimation should be revisited, harnessing new opportunities created by the Goods and Services Tax (GST) to significantly improve it, while restoring growth should be the urgent priority for the new government.
Centre rebuts ex-CEA’s contention on GDP; says right methodology followed