There have been some doubts about India’s claims of being the fastest growing economy, most of which were raised by Indian economists. It has been long debated that certain major economic indicators, such as corporate profits, exports, rural wages, credit growth, investments, and tourist arrival, etc., do not directly match the claim. Similarly, unemployment data also suggests otherwise.
However, it is a recent paper titled India’s GDP misestimation: Likelihood, Magnitudes, Mechanisms, and Implications published by Arvind Subramanian, who served as a former economic advisor, that has got mainstream analysts and media talking about this gap in indicators and claims. According to calculations presented in the paper, India’s GDP growth rate between the period of 2011-12 and 2016-17 has been merely 4.5% as opposed to the official claim of 7% growth rate. If true, this means a staggering difference of 2.5%.
While the Central Statistics Office (CSO) chose to remain silent on the debate, the Prime Minister’s Economic Advisory Council (PMEAC) came in support of the official claim and rebutted the assertions made by Subramanian. The advisory council also questioned his calculations and methodology used in the paper.
There is an inherent limitation in the methodology used by Subramanian as he relied primarily on four variables in his empirical model and missed a few vital variables, the most important of which is taxes. He attributed overestimation in growth rate to the manufacturing industry, which may be true but cannot explain such a massive overestimation on its own as manufacturing only constitutes nearly 25% of Indian GDP.
While it is quite possible for Subramanian’s calculation to be an exaggeration in itself, the doubts will continue to arise unless officials are able to back growth claim with substantial proofs. What needs to be done by CSO is to make all assumptions and figures available that it used for GDP growth calculations in order for neutral researchers and expert economists to reach an objective conclusion.
PM Modi has a very ambitious plan regarding the country’s economy as he sought to ensure $5 Trillion GDP by 2024, from nearly $3 Trillion at present. It would mean that India needs to achieve a growth rate of 8 to 9% per annum to reach the set goal. Most economists term this growth ambition as too good to achieve in reality, especially with the current economic situation in India. Only time will tell how successful (or unsuccessful) PM Modi becomes in his economic ambitions.