Statistical dust-up: The great Indian GDP controversy needn’t have arisen

Ten years after India’s last gross domestic product (GDP) series was released, the Union ministry of statistics and programme implementation (Mospi) has announced the release of a revamped series next year. The new series will replace one of the most contentious national accounts series in the country’s history.

This is perhaps a good time to understand how and why India’s current GDP series became so controversial. Immediately after the GDP series was released in early 2015 (with 2011-12 as its base year), economists and policymakers began questioning the accuracy of the numbers, as it seemed to contradict other economic indicators.

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The controversy took a sharper turn when one of the experts involved in the revision exercise (the economist R. Nagaraj) said that he was not consulted during the finalization of the methodology and published a critique of it in the Economic and Political Weekly. Mospi officials responded to that critique. But questions about the new series persisted, with data users raising doubts about other changes in the new series.

As the technical debate progressed, the issue also acquired a political hue. Since the new series was launched soon after a new government led by Narendra Modi had taken charge in mid-2014, some commentators smelt something amiss. Pressure from the Prime Minister’s Office (PMO) may have led Mospi to overestimate GDP growth rates, these critics feared.

The reality was quite different. In the early days of the new GDP series, the PMO was not entirely unsympathetic to apprehensions about its integrity. In April 2015, the PMO forwarded a note to Mospi that raised questions about the potential “over-estimation" of GDP and asked the ministry’s officials to take “appropriate" action. 

This letter was part of records obtained under the Right to Information (RTI) Act by this writer. The note prepared by two former finance ministry officials (R. Gopalan and M.C. Singhi) was originally sent to Nripendra Misra, then principal secretary at the PMO.

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At that time, the finance ministry’s chief economic advisor Arvind Subramanian and Reserve Bank of India governor Raghuram Rajan had both expressed doubts over the new series. These criticisms were not considered politically unpalatable, since they pertained to years when the opposition was in power. But the government’s tolerance of such criticism ebbed as the years progressed and its own growth record came under scrutiny. 

Subramanian’s efforts to raise this issue in the 2017-18 Economic Survey were foiled by the PMO, former finance secretary Subhash Chandra Garg claimed in his book We Also Make Policy.

Around this time, the Niti Aayog got involved in reviewing the GDP methodology and in the preparation of a back-cast series. The government think-tank was keen to deflate the growth record of the previous government, according to two people with direct knowledge of the matter. When the back series was released by the Niti Aayog chief in 2018, it “corrected" the growth rate of the previous regime, contradicting an “experimental" back-series published earlier in a National Statistical Commission report.

The Aayog’s involvement in a technical exercise cast severe doubts on the back-series. If the Aayog had aimed to burnish the ruling regime’s economic record, it only ended up denting its credibility.

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A weak statistical system did not help matters. By the time the GDP numbers were revised in fiscal year 2014-15, India’s statistical system was already in a fragile shape, as I have argued earlier (see ‘India’s Statistical System: Past, Present, Future,’ Carnegie Endowment for International Peace Working Paper, June 2023). National accountants had to bridge the gaps in existing databases using heroic assumptions.

These assumptions did not go unnoticed. In particular, questions were raised about the use of formal sector proxies to estimate informal sector growth; the method of deflation used to compute the real (inflation-adjusted) growth rates; the manner in which an untested database of company filings (MCA-21) had been plugged into the national accounts; and the assumptions used to derive the sectoral and regional shares of national output. The questions came from a diverse crowd of data users, from financial analysts and academic economists to policymakers and state government statisticians.

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The unconvincing answers of Mospi officials to these questions only muddied the waters further. Much of the controversy could have been avoided if Mospi had initiated an independent audit of the national accounting system. Even if the MCA-21 database had been released in a machine-readable format, it would have helped allay some concerns. 

But Mospi’s leadership, unfortunately, chose to eschew that path, and instead offered lame excuses for why the raw data couldn’t be published. Even the ‘Sources and Methods’ document that typically follows each GDP base-year revision wasn’t released.

The silver lining in all of this is that the government seems to have learnt its lesson from that episode. Mospi’s current leadership is keen to avoid mistakes of the past. It seems invested not just in fixing the gaps in India’s current statistical edifice, but also in making the country’s statistical system more transparent.

This is the first of a two-part series on India’s GDP revision process.

The author is a Chennai-based journalist.