The GDP games of the Modi government

Up is down and down is up. Don’t believe me? Just look at the revised economic growth data released by the Niti Aayog. Here’s what the government wants you to believe: the Indian economy, according to revised estimates based on a new methodology, is growing faster now than it did under the UPA. You may be inclined to believe the government’s revised data but then you also have to believe the following: higher growth in credit, investment, corporate profits, exports (and imports), and other economic indicators leads to lower GDP growth. Much lower growth in these indicators leads to higher GDP growth. In addition, if an economy suffers two successive droughts (2014 and 2015) and two shocks (Demonetisation and GST rollout), GDP growth is better. Also, if no significant job growth is taking place and the informal economy has taken a massive hit, GDP growth is higher. All this may sound ludicrous but that is essentially what the Modi government wants us to believe. Suspend disbelief. Trust the government. All is well.

Well, actually, all is not well. To better understand what is going on, we need to understand why GDP data was revised. In 2015, the Central Statistical Office (CSO), which is responsible for publishing estimates of economic activity, announced two changes to the way it calculates GDP. First, the base year for calculating GDP was revised from 2004-05 to 2011-12. This is considered a routine change because it helps remove the impact of inflation in GDP calculations. The second change was more substantive since it involved methodological changes. The new methodology incorporated more data on corporate activity. Also, the goods and services that are produced changes over time. We have smart phones now but a few decades back we didn’t even have basic mobile phones. Incorporating such changes, if done using technically appropriate methods, was unobjectionable and in line with international practice.

Initially, the CSO only revised growth figures for the period 2011-12 to 2014-15. Since then, India has followed the revised methodology. Unfortunately, for three years, the CSO did not publish data for the years prior to 2011-12. Not having a revised “back series” makes any meaningful comparison between current performance and past performance impossible. What we could not understand is why the CSO delayed releasing the GDP back series because other countries including the United States and China routinely revise their methodologies but almost simultaneously provide comparable historical GDP data.

In August this year, a draft report on the GDP back series was put in the public domain by a committee set up by the National Statistical Commission (NSC). This report indicated that under the new methodology, growth was higher under the UPA than the old methodology indicated. This created a firestorm with growth under UPA looking even better than it already was. The government removed this report from its website and said that more work was needed on the report.

Which leads us to the latest revision of GDP data for years 2005-06 to 2010-11, apparently using a methodology different from that of the NSC committee. Why data was not revised for 2004-05, the first year of the UPA, or the Vajpayee years is unclear. The newly released data indicates that India’s GDP grew 6.7% in 2006-12 (down from 8.9% in the old series) while growth was 7.3% for 2014-18. The revised data is so transparently nonsensical that it has already attracted accusations of data manipulation by economic experts. Some have asked how GDP could go up from 4.7% to 6.9% in 2013-14, when the economy was widely perceived to be growing relatively slowly while GDP is shown to be growing much slower in a period widely considered as India’s strongest growth period? Up is down. Down is up.

Business journalist Latha Venkatesh and economic commentator Vivek Kaul put out data that showed very high growth in key economic indicators (corporate profits, credit, auto sales, exports etc.) during the UPA’s tenure. For the same indicators, growth was meagre from 2014 to 2018. This led Kaul to write that the government’s revised data does not pass the “smell test”. I also pointed out that the Modi government’s war on the informal economy through demonetisation and GST plus a slump in real estate and weak job growth plus farm distress and lower investments would all point to lower growth in 2014-18.

Despite all evidence to the contrary, the Modi government has released laughable data. This led economist Mihir Sharma to tweet that “…the services sector contribution has been obviously and transparently manipulated to reduce growth prior to 2014.” TN Ninan, a reputed commentator, expressed deep scepticism and pointed out that, “As with the dodgy claims on employment generation (also midwifed by NITI Aayog), the government’s think-tank has some explaining to do if the charge of official statistics having gone political is not to gain currency.”

The Modi government’s revised GDP data series is nothing but a brazen attempt to rewrite the nation’s economic history. For someone who asked for 60 months to do the work that others had not done in 60 years, it must be embarrassing to have an economic record that pales in comparison to the 10-year record of a “weak” and “indecisive” Dr Manmohan Singh. In attempting to hide its record of failure, the Modi government is damaging the hard-earned credibility of India’s economic data. This issue is of vital national interest and must not be made subservient to Modi’s petty politics. I hope that the next government sets up an independent commission of experts to carefully examine the GDP back series to bring restore trust in India’s economic data.

The author, formerly with the World Bank, is a member of the Indian National Congress. His forthcoming book on the economy under the Modi government is being published by Penguin Random House India. Views expressed are personal.