GDP Overestimated, Growth during 2012-17 at 4.5%: Ex-CEA
The growth numbers have come back to haunt the government with former chief economic advisor (CEA) Arvind Subramanian also questioning the change in GDP calculation methods and numbers effected last year.
 
In his recent research paper published by Harvard University, the former CEA has said there is a possibility of substantial overestimation in the growth figures while stating that the actual GDP growth between 2011-12 and 2016-17 was around 4.5% as against 7%. 
 
"A variety of evidence suggests that the methodology changes introduced for the post-2011 GDP estimates led to an over-estimation of GDP growth", he said.
 
Dr Subramanian has suggested that India's gross domestic product (GDP) growth estimate has been overestimated by around 2.5 percentage points between 2011-12 and 2016-17, a period that covers the years during both the UPA and the NDA governments.
 
The adotion of a new GDP series to measure the country's economic growth, months after the government itself slashed previous UPA-era GDP growth rate for 2010-11 from the earlier estimated 10.3% to 8.5%, has fuelled controversy. 
 
Dr Subramanian said: "This paper shows that India changed its data sources and methodology for estimating real gross domestic product (GDP) for the period since 2011-12. This change has led to a significant overestimation of growth." 
 
"Official estimates place annual average GDP growth between 2011-12 and 2016-17 at about 7%. We estimate that actual growth may have been about 4.5% with a 95% confidence interval of 3.5% - 5.5%," the research paper added. 
 
The ex-CEA says there was "Proxying Informal by Formal Activity". 
 
The informal sector accounts for 30% of manufacturing gross value added (GVA - excludes taxes) and hence about 5% of overall GVA. According to the paper, this proxy might be reasonable in normal times. But it likely overestimated growth during a period when major policy actions, viz., demonetisation and GST (Goods and Sevices tax), disproportionately impacted the informal sector. 
 
Two important policy implications follow, says the ex-CEA, adding that the entire national income accounts estimation should be revisited, harnessing new opportunities created by the GST to significantly improve it, while restoring growth should be the urgent priority for the new government.
 
"India must restore the reputational damage suffered to data generation in India across the board -- from GDP to employment to government accounts -- not just by conferring statutory independence on the National Statistical Commission, but also appointing people with stellar technical and personal reputations," the paper said.
 
"At the same time, the entire methodology and implementation for GDP estimation must be revisited by an independent task force, comprising both national and international experts, with impeccable technical credentials and demonstrable stature. And it must include not just statisticians but also macro-economists and policy practitioners."
 
Asserting that the overestimation is not political in nature, Dr Subramanian, who was the CEA between 2014 and 2018, said this must be distinguished from recent controversies over a back-casting exercise and 'puzzling upward revisions' for recent years. 
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
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    COMMENTS

    B. Yerram Raju

    2 months ago

    Criticism based on convenient hypothesis and manipulated models is unethical and unprofessional but for the position held with the Government earlier and the position he now enjoys in academics is what that requires perhaps this attention. Letting public know the mechanics of GDP is necessary. A good elucidation should be following in further articles. As an economist I feel that GDP that hides more than what it reveals, should be replaced by Gross Happiness Index when education and health would get the deserved treatment in the \budgets and Constitutional rights would be protected by the Government s.

    Iyer Siva

    2 months ago

    Dr AS should have informed the respective Govt during his times , had he felt it so and if he remained to be thorough professional in his role as CEA. Having missed that role and opportunity to demystify his current stand doesn’t August well either for his role or for the well wishers of the country. Doing autopsy of such economically vital process of determination of GVA / GDP post his exit is something he should not have touched upon, rather it was a role he should have had focused during his tenure. His comments through a seemingly contemptuous prism does not augur well in journalistic or a truly economist’s inquiry with a pragmatic approach on a country’s economy.

    REPLY

    Mallikarjun D.V.R.

    In Reply to Iyer Siva 2 months ago

    He along with his friend Rajan started criticising indian government after leaving the job and the country. Great integrity towards indian public from whom their salary is collected as taxes and paid. They should return the salary earned for being untrue to the public.

    RBI Cuts Repo Rate by 25 bps; Changes Stance to Accommodative for Boosting Growth
    Home and auto loans are set to become cheaper as the Reserve Bank of India (RBI) on Thursday lowered its key lending rate for commercial banks by 25 basis points (bps) to 5.75%. The central bank also changed its monetary policy stance to accommodate from neutral.
     
    The decision to reduce the repo rate was unanimously taken by the RBI's monetary policy committee (MPC) at its second monetary policy review of the current fiscal.
     
    In a statement, the RBI says, "The MPC notes that growth impulses have weakened significantly as reflected in a further widening of the output gap compared to the April 2019 policy. A sharp slowdown in investment activity along with a continuing moderation in private consumption growth is a matter of concern. The headline inflation trajectory remains below the target mandated to the MPC even after taking into account the expected transmission of the past two policy rate cuts. Hence, there is scope for the MPC to accommodate growth concerns by supporting efforts to boost aggregate demand, and in particular, reinvigorate private investment activity, while remaining consistent with its flexible inflation targeting mandate."
     
    As per the monetary policy statement, the main considerations behind the MPC's decision were the decline in private final consumption expenditure (PFCE) and moderation in exports.
     
    At present, high interest rates and liquidity constraints have demoralised auto, home and capital goods buyers. Even the high frequency indicators suggest moderation in activity in the service sector.
     
    Accordingly, a lower repo, or short-term lending rate for commercial banks, will reduce interest cost on automobile and home loans, thereby ushering in growth.
     
    This is the third reduction in repo rate during 2019. The RBI in April lowered its key lending rate by 25 bps to 6%. Before that, in February, the MPC had voted to lower the repo rate by 25 bps to 6.25%.
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    UDIN mention now mandatory for audit reports
    The Institute of Chartered Accountants of India (ICAI) has mandated the mention of the Unique Document Identification Number (UDIN) in audit reports starting July 1.
     
    The announcement follows a decision taken by the ICAI Council at its meeting on December 17-18, 2018.
     
    "The members may be aware that the 'Unique Document Identification Number (UDIN)' has been made mandatory as per the Council decision taken at its 379th meeting held on 17-18 December 2018 in the following phases -- 1) all certification done by practising CAs w.e.f. February 1, 2019, (2) all GST & Tax audit reports w.e.f. April 1, 2019 and 3) all other attest functions w.e.f. July 1, 2019," said the ICAI notification dated June 4.
     
    "With a view to bring uniformity, the ICAI members must mention the UDIN immediately after their ICAI membership number while signing audit reports," it added.
     
    The UDIN will be in addition to other requirements relating to the auditor's signature prescribed in the relevant law or regulation and the standards on auditing.
     
    Delhi-based Chartered Accountant Vikas Gupta called it a welcome step. "The UDIN would help to verify online whether a certificate or audit report that has been submitted has actually been signed by a chartered accountant," he told IANS.
     
    "This would ensure transparency and pressure the auditors to take responsibility of their audits. The ICAI also will have the data of the certificates signed by its members," said Gupta.
     
    Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
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