In November last year, the government came under sharp attack from the Congress when data were revised to show the average annual growth rate between 2005-06 and 2013-14 (UPA period) stood at just 6.7%, against 7.7% recorded in the first four years of the NDA government.
The ministry of corporate affairs (MCA) is considering a proposal that would enable official statisticians to capture financial performances of a substantially large number of companies while computing quarterly national income. Through an amendment to the Companies Act, the MCA is planning to mandate that large unlisted firms above a certain threshold submit data on a quarterly basis, instead of annually, for the MCA21 database, a senior government official told FE.
The move comes amid persisting controversies over alleged GDP over-estimation and an undue degree of data volatility. Analysts have often argued that the sharp revisions in GDP estimates tend to distort the actual picture of the economy and negatively influence policy responses.
Currently, the National Statistical Office (NSO) relies on Sebi data — which provide the quarterly results of around 4,000 (or less) listed companies — to firm up quarterly GDP estimates and the MCA21 data base for the annual estimates. The MCA believes its latest plan, once implemented, could enable government statisticians to lay their hands on database of around 30,000-40,000 companies every quarter. “A larger sample size will also reduce the fluctuations in estimates, especially when the economy goes through a structural change,” said the official.
Economists hailed the move but said the data flow has to be uninterrupted and of credible quality.
Pronab Sen, former chairman of the National Statistical Commission, said: “Any such move will certainly help. This is because usually when the full MCA21 data comes in, it gives a different picture than the one based on the data of just listed companies; this typically leads to a discrepancy between the quarterly and the final annual estimates.”
The MCA21 database was in the midst of a controversy earlier this year when, citing an NSSO study, media reports suggested that as many as 38.7% of services firms in the database are dubious. The government had then asserted that only 16.4% of the firms are either closed or non-traceable and claimed that the blowing up (of data) anyway doesn’t materially affect the year-to-year GDP growth, as much as the level of GDP.
The database had around seven lakh active companies (both listed and unlisted). However, since most unlisted firms don’t file even annual returns on time, the NSO’s provisional and even first revised estimates of GDP capture the performance of only a fraction of the companies. Only in the second revised GDP estimate (which typically comes two years later) that almost all the active companies are covered. In such a situation, a new regime for quarterly declaration will instil discipline into large unlisted companies, which will then be forced to submit annual returns on time as well, according to analysts.
Economist Renu Kohli, who had earlier flagged issues with the MCA21 data base, said: “The statistical anomaly observed in GDP estimates in various revisions that have exhibited large differences in growth rates, even directional change, is inexplicable in a random sample with normal distribution.” For example, it was puzzling that provisional gross value-added (GVA) estimates for 2016-17, based on one lakh companies, could be so dramatically different from the estimate based on, say, three lakh companies in the first round of revision. “Expanding the sample coverage to a significant proportion of total net worth could help address this issue, which is raising the probability of policy errors,” she added.
The government sharply revised up GDP growth for 2016-17, the demonetisation year, from 7.1% to 8.2%, the highest in the NDA regime. Similarly, the GVA growth for the year was revised up to 7.9% from 7.1% reported initially.
Kohli had earlier pointed out that it was odd that the ‘periphery’— the majority of the unlisted firms in the MCA21 database — should so consistently outperform the ‘core’. According to the data for FY18, RBI’s sample of 3,000-odd listed non-government-non-finance companies saw a 5.2% increase in ebit, while the GVA for manufacturing (from GDP data) grew by 12.4%, construction by 13.9% and trade, etc, by 11.8%.
While quarterly data fluctuation has been large at times, even the annual estimates have witnessed sharp volatility, more so when structural changes (like demonetisation or GST) took place.
Commenting on the MCA’s latest plan, NR Bhanumurthy, professor at National Institute of Public Finance and Policy and head of a sub-group formed by the Mundle panel on linking the old and new GDP series, said: “Additional data always helps; to that extent, it’s a good move. But the issue is how consistently and timely the data on unlisted firms will flow in.”
In November last year, the government came under sharp attack from the Congress when data were revised to show the average annual growth rate between 2005-06 and 2013-14 (UPA period) stood at just 6.7%, against 7.7% recorded in the first four years of the NDA government. According to the old series data, the UPA’s average growth rate was 7.6% in its 10 years through FY14.
Former chief economic advisor Arvind Subramanian, too, weighed in on the controversy when he claimed that India’s economic expansion was overestimated by as much as 2.5 percentage points between FY12 and FY17. However, the Economic Advisory Council to the Prime Minister rebutted Subramanian’s claims, saying his conclusion was based on “cherry-picking” of indicators, ignoring services and agriculture that make up for roughly 78% of GDP.