Geetima Das Krishna
(The author is a research scholar at IIFT. She can be reached at geetima-dk@yahoo.com)
During a TV interview just after the budget announcement, Mark Mobius, the famous investor, chose to talk more about India’s statistical data issues than the budget numbers. He expressed shock at the sharp revision of the GDP growth data. “The Indian government should be transparent and open all its books to the public,” Mobius said.
The official CSO data now pegs GDP growth of India in FY2017 at 8.2 per cent, a whopping 110 basis points higher than previous estimate. Growth in FY2018 at 7.2 per cent is now 50 bps higher than previous estimate. The nominal GDP in the same year is revised up by 130 bps despite the inflation remaining benign.
The consensus view was that the economy was already losing steam by first quarter of FY2016-17 and the slow-down was intensified by demonetisation in November 2016. There are various ground reports on significant pain and job losses in the informal sector due to demonetisation that fed into the formal sector. This narrative now stands squashed. According to official estimate, India grew the fastest since 2011-12 in the year of demonetisation.
Such drastic data revisions have led foreign investors question the credibility of our statistical data. Some even have gone a step further and expressed concern whether India is turning into another China and manipulating its official data.
India – not another China:
India’s modern statistical system took shape even before independence under the leadership of Prof PC Mahalanobis who was known as ‘father of Indian Statistical System’. In the 1940s, Indian Statistical Institute (ISI), under Mahalanobis, emerged as one of the great centres for the study of statistical methods attracting many renowned statisticians from all over the world. The National Sample Survey (NSS), launched by the NSSO in 1949, was considered the most ambitious household survey in the world, covering over 1,800 villages and over 100,000 households across India. These methods became the standard for household surveys the world over. The Ministry of Statistics & Programme Implementation (MoSPI) was later created in 1999 and the National Statistical Commission (NSC) was set up in 2005 in order to oversee the entire range of official statistics. India has the history of producing high-quality economic statistics. It is baffling that suddenly these once-mighty statistical agencies have become incompetent to publish regular reliable growth series.
On the other hand, China, the world’s second largest economy, always had questionable statistics. It is reported that the authenticity of the official data came under greater scrutiny when the party chief in Liaoning, premier Li Keqiang, told the US ambassador, in 2007, that regional GDP figures were actually ‘man-made’. Since then, many economists and investment banks have started their own methodologies to gauge China’s economic performance using high frequency ground data like monthly electricity usage, freight transport or car sales etc that are hard to fudge. The Chinese data inconsistencies increased in 2018 as the GDP growth data which were in line with official narrative conflicted with the underlying statistics.
It will be unfair to put the statistical agencies of India and China in the same bracket. Having said that, it is sad to see serious questions being raised on statistical data of our economic series. Sharp data revisions have profound implications for policymakers, investors and industries. What a fall from being the world leader!
Data Revisions – always a problem:
Revision of economic estimates happens everywhere as new information gets incorporated. However, it becomes worrisome when the revisions are so sharp that an economy that was believed to be slowing down suddenly gets tagged as fastest growing. This can lead to serious policy blunders.
The RBI report published last year states, ‘India’s multiple revisions of gross domestic product growth estimates are “confusing,” much less provide a true state of the economy’. The paper showed that for real GDP, first estimates were revised upwards for twelve years by an average of 81 basis points. It was proposed that the advance estimates need to be supplemented with other high frequency indicators of real sector to arrive at a more realistic assessment of the state of the economy.
Subbarao, the former Governor of RBI, often lamented about the poor quality of data which is compounded by frequent and significant revisions. For example, the growth rate in FY 2009-10 was first put at 6.8 per cent which was subsequently revised up to 9.1 per cent. Similarly, whole price inflation in January 2011 at 8.1 per cent was revised up by 120 bps after a few months. On hindsight, it is easy to say that the policy tightening to rein in inflation should have been steeper at that time.
In absence of reliable data, the policy response was sub-optimal. ‘Reserve Bank of India’s monetary policy decisions often go astray because of erroneous data provided by the government’, - Subbarao wrote in his book.
We know that estimating the future growth is a risky business. But the past is becoming as uncertain as the future.
(To be continued)