Ever since India’s Central Statistical Organisation came out with the new GDP series with 2011-12 as the base year, controversy has surrounded it. The CSO claims that the new series is calculated based on a number of methodological changes that bring India closer to international practice. However, the resulting high growth figures do not seem to quite agree with several other indices that usually reflect the strength of the economy.
To examine the issue, I4I Editor Parikshit Ghosh is hosting an e-Symposium over the next few days. A panel of experts will explain, in detail, the exact changes in estimation methods and identify potential problem areas that could be a source of overestimation.
The statistical framework for national income accounting is like a network of medical instruments that monitors a patient’s heart rate, pulse, blood sugar levels, etc. It is critical for tracking health, diagnosing problems, and determining the success and failure of interventions. The measurement of Gross Domestic Product (GDP) and its various components occupies a central place in economic analysis and policy. It also has enormous political significance since GDP growth rate figures are an important item in any government’s report card.
Ever since the Central Statistics Office (CSO) came out with the new GDP series with 2011-12 as the base year, controversy has surrounded it. The new series is calculated based on a number of methodological changes that bring India closer to international practice, the CSO claims. It has resulted in lower GDP estimates for the earlier years, and hence higher growth estimates. If one takes the numbers at face value, India emerges as the fastest growing major economy in a world very much in the grip of a slowdown if not recession. In particular, the new methodology has produced substantially higher growth estimates for the manufacturing sector.
Yet, there are many skeptics. The growth figures do not seem to quite agree with several other indices that usually reflect the strength of the economy. Exports have been declining, private investment is down, credit is sluggish. Criticism has sometimes gone beyond statistical minutiae and ventured into the territory of conspiracy theories, implying the national income accounts are rigged for political advantage. There is no credible evidence to support this view. Yet, responsible observers of the Indian economy must delve deeper to solve the mystery and figure out why various indicators diverge at the moment. Maybe there is some flaw in the methodology of GDP measurement that needs correction; maybe there are genuine macroeconomic changes that elude our understanding at the moment. Either way, there are important lessons to learn.
The e-symposium we have put together this week features a panel of experts who go deep into the belly of the beast. They explain, in detail, the exact changes in estimation methods and identify potential problem areas that could be a source of overestimation. Some commentators also come up with revised growth estimates based on corrections they think are necessary.
For serious watchers of the Indian economy, the forthcoming symposium articles will give much needed insight into the controversy surrounding recent GDP estimates.