India defends methodology to measure economic growth

New Delhi: The Indian government on Tuesday defended its methodology of calculating the country’s economic growth, countering the argument of a former top economic advisor who said that Asia’s third-largest economy might be overestimating its growth rate.

India objectively measures the contribution of various sectors in the economy and the country’s gross domestic product (GDP) estimates are based on accepted procedures and methodologies, the ministry of statistics said in a statement.

In 2015, New Delhi changed both the way the government calculates GDP and the base year.

The country started measuring GDP by market prices instead of factor costs, to take into account gross value addition in goods and services as well as indirect taxes. And the base year was shifted to 2011-12 from 2004-05 earlier.

In a column published in a newspaper on Monday, Arvind Subramanian, former chief economic adviser, said his research indicated that the change in the methodology led to GDP growth being overstated by about 2.5 percentage points per year between 2011-12 and 2016-17.

Official estimates place average annual growth for this period at about 7 per cent. Actual growth may have been about 4.5 per cent, Subramanian said.

“My new research suggests that post-global financial crisis, the heady narrative of a guns-blazing India — that statisticians led us to believe — may have to cede to a more realistic one of an economy growing solidly but not spectacularly,” Subramanian said in the column.

There have been questions for many years about whether Indian government statistics were telling the full story but two recent controversies over revisions and delays of crucial numbers have taken those concerns to new heights.

The government itself has admitted there are deficiencies in its data collection.

A study conducted by a division of the statistics ministry in the 12 months ending June 2017 found that as much as 36 percent of the companies in the database used in India’s GDP calculations could not be traced or were wrongly classified.

But the government said there was no impact on GDP estimates as due care was taken to adjust corporate filings at the aggregate level.