Major Economic Slow-down in India:Under the old method, it would be just a little over 3%. So the Hindu Rate of Growth returns before the Hindu Rashtra arrives... https://t.co/9OfWnOGhDU— Shekhar Gupta (@ShekharGupta) September 1, 2019
Gupta is referring to India's GDP growth rate which has reportedly dropped to 5% for the last quarter under Modi's method of measurement. Many experts, including Modi's former top economic adviser Arvind Subramaniam, believe it overstates India's GDP growth rate by about 2.5%.
Hindu rate of growth refers to the low annual growth rate of India's GDP before economic liberalizations of 1991. It stagnated around 3.5% from 1950s to 1980s, while per capita income growth averaged just 1.3%.
Before Mr. Modi became prime minister of India in 2013, Indian economy saw robust growth reaching a peak of 8.5%. There were few questions about the veracity of GDP figures published by the Manmohan Singh government. However, there have been persistent doubts about Mr. Modi's GDP figures since his government revised GDP measure-met methodology.
Indian GDP Figures Disputed:
Indian Prime Minister Narendra Modi's government has claimed GDP growth rate averaging 7% since 2014 when BJP won the parliamentary elections. This claim has been challenged by many Indian and foreign economists in the last several years.
India’s gross domestic product product (GDP) growth rate between under Mr. Modi's government should be about 4.5% instead of the official estimate of close to 7%, according to Mr. Modi's former chief economic advisor Arvind Subramanian who published a research paper at Harvard University. “India changed its data sources and methodology for estimating real gross domestic product (GDP) for the period since 2011-12. This paper shows that this change has led to a significant overestimation of growth,” he said in the paper.
While India's boosters in the West are not only buying but applauding the new figures, Indian policy professionals at the nation's Central Bank and the Finance ministry are having a very hard time believing the new and improved GDP brought to the world by Indian government. Dissenters include Morgan Stanley's Ruchir Sharma, an Indian-American, who has called the new numbers a "bad joke" aimed at a "wholesale rewriting of history".
Based on the latest methodology, it is claimed that the Indian economy expanded 7.5 percent year-on-year during the last quarter, higher than 7.3 percent growth recorded by China in the latest quarter, making it the fastest growing major economy in the world, according to Reuters. Is it wishful thinking to make Indian economy look better than China's?
|India GDP Revisions. Source: Financial Times|
The GDP revisions have surprised most of the nation's economists and raised serious questions about the credibility of government figures released after rebasing the GDP calculations to year 2011-12 from 2004-5. So what is wrong with these figures? Let's try and answer the following questions:
1. How is it possible that the accelerated GDP growth in 2013-14 occurred while the Indian central bankers were significantly jacking up interest rates by several percentage points and cutting money supply in the Indian economy?
2. Why are the revisions at odds with other important indicators such as lower industrial production and trade and tax collection figures? For the previous fiscal year, the government’s index of industrial production showed manufacturing activity slowing by 0.8%. Exports in December shrank 3.8% in dollar terms from a year earlier.
3. How can growth accelerate amid financial constraints depressing investment in India? Indian companies are burdened with debt and banks are reluctant to lend.
4. Why has the total GDP for 2013-14 shrunk by about Rs. 100 billion in spite of upward revision in economic growth rate? Why is India's GDP at $1.8 trillion, well short of the oft-repeated $2 trillion mark?
Questions about the veracity of India's economic data are not new. US GAO study has found that India's official figures on IT exports to the United States have been exaggerated by as much as 20 times.
Similarly, French economist Thomas Piketty has argued in his best seller "Capital in the Twenty-First Century that the GDP growth rates of India and China are exaggerated. Picketty writes as follows:
"Note, too, that the very high official growth figures for developing countries (especially India and China) over the past few decades are based almost exclusively on production statistics. If one tries to measure income growth by using household survey data, it is often quite difficult to identify the reported rates of macroeconomic growth: Indian and Chinese incomes are certainly increasing rapidly, but not as rapidly as one would infer from official growth statistics. This paradox-sometimes referred to as the "black hole" of growth-is obviously problematic. It may be due to the overestimation of the growth of output (there are many bureaucratic incentives for doing so), or perhaps the underestimation of income growth (household have their own flaws)), or most likely both. In particular, the missing income may be explained by the possibility that a disproportionate share of the growth in output has gone to the most highly remunerated individuals, whose incomes are not always captured in the tax data." "In the case of India, it is possible to estimate (using tax return data) that the increase in the upper centile's share of national income explains between one-quarter and one-third of the "black hole" of growth between 1990 and 2000. "
T.C.A. Anant, the chief statistician of India, has told the Wall Street Journal that “there’s a large number of areas where we have deviated (from the United Nations’ latest guidebook on measuring GDP) for a large measure, because we are simply, at the moment, unable to implement those recommendations.”
There is growing consensus among top economists that India's GDP figures reported by Mr. Modi's government are highly exaggerated. India's former chief economist Arvind Subramanian has said the figures are overstated by 2.5%. He puts the real growth rate in the last 5 years at 4.5%. The latest claim of 5% growth means that the actual growth rate has dropped to be below 3%, often referred to as "Hindu growth rate" of the years before 1991 economic reforms. It is being blamed on Mr. Modi's single-minded focus on his fascist Hidutva agenda to remake India into a Hindu Rashtra. The slowdown in Indian economy is also reflected in India experiencing the worst unemployment situation in 45 years. All sectors of the economy from construction to manufacturing are seeing high job losses.
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