Subramanian's latest assertions are made through a new paper titled ‘Validating India’s GDP Growth Estimates’ and a power-point presentation posted on NCAER website.
Former chief economic advisor Arvind Subramanian has defended his earlier analysis that India’s economic expansion has been overestimated between FY12 and FY17 by as much as 2.5 percentage points and indicated that he had flagged the ‘puzzle’ in the new GDP series data when they were first released in early 2015 and later in the second volume of the economic survey for 2016-17 (made public in August 2018).
In his new paper, Subramanian stuck to his earlier claim of over-estimation of the GDP growth and said no other country had recorded 7% growth over any five-year period since 1980, with India’s post-2011 combination of investment (3.2%) and export (3%) growth.
“Indeed, the median combination of investment and exports necessary to achieve 7% growth is 11.8% and 9.8%, respectively, more than three times India’s performance. So, historical evidence from other countries does cast doubt on the post-2011 GDP growth estimates,” he said.
Subramanian’s latest assertions are made through a new paper titled ‘Validating India’s GDP Growth Estimates’ and a power-point presentation posted on NCAER website.
Economic advisory council to the Prime Minister (EAC-PM) had earlier responded to the ex-CEA’s claims saying ‘these are certainly issues that Subramanian must certainly have raised while he was working as CEA’. On Friday, government officials questioned his fresh assertions as well.
A senior official that FE spoke to sought to know if indeed the former CEA was sceptical about the high growth estimates during his tenure, what prompted him to forecast the 2017-18 GDP expansion at 6.75-7.5% in the economic survey (for 2016-17).
“In fact, the growth projections in various economic surveys after 2015 under Subramanian were never radically out of sync with what many other analysts or the relevant government departments had forecast. Also, data for the indicators that he has chosen now to question the growth estimates were available then as well,” he said.
Another official said Subramanian was not the only one (the then RBI governor Raghuram Rajan, too, had questioned the GDP data) who were initially ‘puzzled’ by the outcome of the change in the base year as well as methodology to compute national income in 2015. “It is quite natural that experts (especially from within the government) would have loads of questions whenever the methodology changes, and the Central Statistics Organisation also expected it. But their queries were thoroughly addressed subsequently and doubts cleared.”
In the new paper, Subramanian countered the contention of the EAC-PM that growth might not have declined since India’s tax-GDP ratio rose in the post-2011 period, saying real growth in direct taxes actually dropped from 14.3% pre-2011 period to 3.7% during post-2011 period. The EAC-PM, in its reply to Subramanian’s paper published in June, had said: “While selecting 17 indicators, the author chooses to overlook tax data….The author’s logic of not using tax data appears to be a convenient argument meant to avoid inconvenient conclusions based on hard facts.”
Subramanian, however, doesn’t seem to have countered the EAC-PM’s contention that in the 17 indicators that he chose to claim over-estimation of the economic growth in his first paper, the representation of the services and farm sectors that account for roughly 78% of the GDP is ‘as good as missing’.
On taxes, however, the former CEA said, “Another counter-argument is that growth could not have declined, since India’s tax-GDP ratio rose in the post-2011 period, from about 10% in 2011-12 to 11% in 2016-17. After all, revenue performance tends to be pro-cyclical, so rising revenue-GDP ratios tend to suggest surging growth.”
Much, however, cannot be inferred about GDP growth from indirect taxes as, after global oil prices fell, the government raised the excise duties on petroleum sharply, which increased revenues and hence the petroleum tax-GDP ratio by about 0.8 percentage points of GDP between 2011-12 and 2016-17, he added.