The Daily Fix: With no back series and confusing GDP data, is India's economy flying blind?

The Big Story: Back log

The Gross Domestic Product estimates released by the Central Statistics Office last week should have come as a pleasant surprise. India was hit by a massive currency shock in November, after the government decided to swap 86% of the currency in circulation for new notes. The inadequate provision of cash that followed led to severe distress across the country: thousands of workers in the informal sector lost their jobs, farmers did not have cash to pay for crucial inputs during the sowing season and millions of person-hours were frittered away standing in bank queues. Yet the first GDP estimates that factored in demonetisation seemed to suggest that the move barely had any impact on the economy, which is springing forward at a rate that allows India to continue to be the world’s fastest-growing major economy.

This should have been good news. But the dominant response to the GDP numbers has been disbelief. Could India really have recorded 10% consumption growth in the same quarter that currency was sucked out of the system and people were stuck without cash? Do the GDP numbers simply rely on favourable base effects? Do we know how well the economy is actually doing?

It isn’t just the Opposition that is questioning the data. Doubts about the Central Statistics Office’s approach have been raised ever since India updated its method of calculating the GDP in January 2015, when the growth rate showed a big jump from 4.7% to 6.9% for 2013-’14. It came with a huge round of questions about the Central Statistics Office’s methods, especially when they were followed by several sharp revisions of estimates.

Still, methods of calculating the GDP are always going to involve some level of estimation, since it is nearly impossible to precisely capture what is going on in an economy. As an example, India’s estimates of the informal economy are entirely based on formal economy numbers, an approach that might have broken down after demonetisation because of the differing impacts on each sector.

The important thing is for the Central Statistics Office to be consistent and transparent in its approach. As long as subsequent data is comparable to what came before it, we at least have some sense of how the economy is progressing. Which is why its troubling to read news in the Business Standard that the Central Statistics Office may not be releasing the back series of GDP figures – GDP estimates for the previous decade under the new method.

To properly understand which way the economy is headed, we must be able to examine where it started from. The back series numbers are likely to show volatile shifts and growth rates as low as 2% for the year of the economic crash, which would have political implications and damage the India growth story. Yet transparency should be more important to the Central Statistics Office, especially at a time when its figures are being cast in doubt by analysts at home and abroad. The government needs to do everything it can to shore up the credibility of its GDP numbers, while it works on improving the economy. There is little use in releasing statistics that nobody believes.

The Big Scroll

• How on earth did India come up with these GDP numbers, asks Jayati Ghosh.
• It’s not just the GDP. There’s also the mystery of 10% growth in consumption expenditure, writes Anupam Gupta.
• It feels like our government has taken lessons from the Soviet Union in massaging data, says Girish Shahane.
• Indian government’s data bank suggests demonetisation had no effect on GDP, writes Udit Misra.

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Picks & punditry

1. Pranav Gupta and Rahul Verma in the Indian Express explain how the Bharatiya Janata Party learnt from its failure in Bihar and adapted while contesting in Uttar Pradesh.
2. Ira Dugal on BloombergQuint evaluates the first six months of Urjit Patel’s tenure as Reserve Bank of India governor, saying the central bank needs to be much more communicative.
3. If you use the Economic Survey to examine the new Gross Domestic Product numbers, it actually seems like demonetisation has boosted the economy, writes Manas Chakravarty in Mint, who suggests that accepting that would require some suspension of disbelief.
4. Aarati Krishnan, however, in the Hindu says that, while there are some concerns about the numbers put out by the Central Statistics Office, that would be down to the way it captures data, and not the fudging of numbers themselves.
5. “For now, however, India has the same level of economic credibility as a country like Vietnam (which publishes GDP results even before the year ends),” writes Derek Scissors in Barron’s.

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