How trustworthy is India's economic data? Does the Modi government care about it anymore?

How trustworthy is India’s economic data and, how seriously does the government take the task of collecting economic data?

In an interview to Swarajya magazine published on July 2, Prime Minister Narendra Modi claimed things were so bad under the Congress-led United Progressive Alliance that he had to conceal the true state of the country’s economic affairs, for fear of causing panic. Modi’s detractors point out that the system for routinely gathering and analysing national data seems to have completely broken down under his regime.

The government does not seem to care very much. At this instant, India does not have a chief statistician. That post has remained vacant since TCA Anant retired at the end of January. This has never happened before.

India may not have a chief economic adviser until the 2019 Lok Sabha elections are concluded. At the least, a new incumbent has not been announced since Arvind Subramaniam decided to leave in June.

India does not have a finance minister – or rather, it seems to have two ministers of cabinet rank who could claim to be running finance (and it has two ministers of state for finance as well). The Bharatiya Janata Party apparently does not have a treasurer either, going by reports referring to its last tax return.

Confusion at the top of the economic ladder seems to be compounded by lackadaisical implementation of normal processes. There is talk that the quarterly surveys of the Labour Bureau, which indicate levels of employment, will be discontinued. The Reserve Bank of India has famously not been able to complete the counting of notes returned after the November 2016 demonetisation.

The methodology to calculate gross domestic product (the total value of goods and services produced in the country in a year) was changed in 2014-2015 and the base year for calculation was changed to 2011-2012 from 2004-2005. “Back series” data, calculating what GDP would have been in earlier years using the new methodology, has not yet been released.

Lack of political will?

No Indian government has ever been this bad at collecting and disseminating national economic data, or at routinely ensuring key posts are filled. The Reserve Bank normally releases data on cash with the public in its fortnightly bulletins. Indeed, it did so until mid-December 2016, after which it has suddenly found itself incapable of completing the task of counting the cash returned in demonetisation.

The GDP base years are changed every five years or so, and with every previous change, the “back series” were released immediately, with calculations usually going back a decade or more. Chief statisticians have seamlessly retired and been replaced with no gaps. Chief economic advisers have usually been announced while the previous incumbent is in place. There has never been a situation when two men have been referred to as finance minister at the same time. No registered political party has functioned without a treasurer – indeed, there is a case for saying that the accounts of a political party cannot be legally presented without an official treasurer signing off the statements.

The appointment of chief economic advisers, chief statisticians and finance ministers may be politically driven. But why have routine processes carried out by government departments stopped working? Given that there has not been a nuclear war, that reason is presumably a lack of political will.

Importance of economic data

Is it important to have accurate economic data? Yes. The Budget allocation exercise and other government expenditures have to be based on data. Policy decisions cannot address problem areas if the problems, and their scales, are unknown. If policy is made and implemented, there is also no way to know how effective that policy is without data.

This is especially true for a very large economy with a heterogeneous population of 1.2 billion, where the only way to identify problems and judge scale is by gathering and analysing masses of data. Only governments have the manpower, resources and mandate to do this on the necessary scale.

The government has access to direct and indirect tax records, census records, corporate filings, high-speed data such as car sales, rail freight, passenger traffic, freight traffic through ports, foreign direct investments, foreign portfolio investments, fuel consumption, real estate sales and registrations, power generation data, road toll collections, export numbers, import numbers, government expenditures, and a host of other details. It is the task of the government to gather this, collate it, and make estimates of national incomes, deficits, specific areas of concern, among others.

It is impossible for any private sector researcher to gather all this information. At best, independent researchers can pick up some data that is in the public domain, to try and check if the government’s estimates and projections are consistent with known data. But it is next to impossible to definitively say that government claims are wrong, even if available verifiable data indicates inconsistency.

There is at least one study that suggests that India’s GDP is overstated by about 37% and that growth rates have been well below official estimated levels through 1992-2006. This relies on one of the more exotic ways to try and check the accuracy of GDP data. It compares satellite pictures of night-time illumination of 188 nations over long periods of time. The logic: a nation that is growing at a given rate should have seen quantifiable growth in luminosity. The same study estimates that China’s official statistics overestimated its GDP by up to 65% during the same period.

Less exotic methods involve trying to reconcile a wide array of indicators, including freight volume, passenger travel, electricity output, construction indicators, purchasing managers indices, financial indicators like money supply and the stock market, alternative GDP deflation measures, and alternative measures of production.

Chinese Premier Li Keqiang admitted in 2007 that he considered China’s GDP figures “man-made” and unreliable. Instead, he used electricity production, rail cargo shipments and loan disbursements to take a call on growth rates.

Using similar measures in India, growth seems to have slowed down. However, since the GDP methodology has been changed and back series are not available, it is quite possible that previous GDP growth calculated by the new methodology was actually higher than the official numbers.

It is puzzling. If we believe Modi, growth rates under the Congress-led regime were disastrous.

But verifiable numbers like power generation growth, auto sales, fuel consumption, financial credit disbursal, corporate results, exports and rail freight shipments all suggest growth rates were higher under the United Progressive Alliance than under the BJP-led National Democratic Alliance. Does this mean that earlier growth rates could be even higher, if recalculated using the new methodology? Could this be a reason for not releasing the back series?

Measurement errors are inevitable in a large, complex economy with a large informal sector. But the apparent inability to perform routine data collection and analysis that has been done comfortably in the past just leads to suspicion of “cooking the books”.