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Sunday 15 December 2019
Economy EAC-PM rubbishes Arvind Subramanian’s claims on GDP

EAC-PM rubbishes Arvind Subramanian’s claims on GDP

EAC-PM about Arvind Subramanian's hypothesis: Any attempt to sensationalise what should be a proper academic debate is not desirable

New Delhi: The Economic Advisory Council to the Prime Minister (EAC-PM) has rubbished former chief economic adviser (CEA) Arvind Subramanian‘s claim of India’s ‘inflated’ GDP figures. The council said Subramanian should have raised the issue while he was working as the CEA. Of course, by his own admission, he has taken time to understand India’s growth numbers and is still unsure of his own figures.

“Any attempt to sensationalise what should be a proper academic debate is not desirable from the point of view of preserving the independence and quality of India’s statistical systems, all of which the former CEA is familiar with,” the EAC-PM said.

Recently, a study “Mis-estimation of the Magnitudes, Mechanisms, and Implications about India’s GDP”, published at the Harvard University. In the article, former CEA Arvind Subramanian had stated that the country’s growth had been overestimated by around 2.5% points between 2011-12 and 2016-17.

But the official estimates have pegged the average annual growth at around 7% during this period. Therefore, the actual GDP growth is likely to have been lower, at around 4.5%, Subramanian wrote.

The article led to a debate on the actual growth numbers nationwide and also internationally, as the state of the Indian economy is today important to the world. The response from the EAC-PM was awaited since then.

Responding to Subramanian’s claim, the EAC-PM said, “We do not use tax indicators because of the major changes in direct and indirect taxes in the post-2011 period which render the tax-to-GDP relationship different and unstable, and hence make the indicators unreliable proxies for GDP growth.”

“The author’s logic of not using tax data appears to be a convenient argument meant to avoid inconvenient conclusions based on hard facts,” the EAC-PM said. The contributors of the paper were economists Bibek Debroy, Rathin Roy, Surjit Bhalla, Charan Singh and Arvind Virmani.

The government stated that the GDP estimates are based on “accepted procedures, methodologies, and available data and objectively measure the contribution of various sectors in the economy”. The methodology of a compilation of macroaggregates has been discussed in detail by a committee comprising experts from academia, National Statistical Commission, Indian Statistical Institute, Reserve Bank of India (RBI), Ministries of Finance, Corporate Affairs, Agriculture, NITI Aayog and select State governments.

The EAC-PM Wednesday said that the base year of India’s income calculations switched to 2011-12, based on recommendations of several committees and it was wrong to suggest that the views of experts had not been taken into account.

The EAC-PM Council said further that the proxy indicators used by Subramanian could be questioned. They said his analysis did not allow GDP increases on the basis of productivity gains. The council added that it would examine in further detail the estimates made in Subramanian’s paper and come out with a point-by-point rebuttal in due course.

In the meantime, NITI issued a press release that read: “The note provides detailed evidence that indicates that Dr Subramanian has cherry-picked a few indicators and performed a rather unconvincing regression analysis to prove his hypothesis that India’s GDP was over-estimated post-2011-12.”

“The new methodology that uses 2011-12 as the base year includes two major improvements, a) Incorporation of MCA21 database, and b) Incorporation of the Recommendations of System of National Accounts (SNA), 2008. This change was in line with other countries that have changed their methodologies in line with SNA 2008 and revised their respective GDP figures. On an average, real GDP estimates saw an increase of 0.7% among OECD countries,” the release read.

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