Fact vs fiction — ASI data sheds light on job growth

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March 19, 2019 2:22 AM

On March 15, 2018, 108 economists and scientists released a letter titled, Economic Statistics in Shambles, published in the prestigious Economic and Political Weekly, that accused the Modi government of suppressing data. It is worth quoting a few sentences from the letter.

Fact vs fiction — ASI data sheds light on job growthFact vs fiction — ASI data sheds light on job growth

In several articles over the last few months, I have been documenting the following simple point—it is the age of fake news, and political parties across the world have used it or are using it. In my forthcoming book, Citizen Raj: Elections 1952-2019, I have a chapter titled, “The Birth of the Fake and Faulty Twins” in which I stress the simple point that, conceptually, it does not benefit the incumbent (and especially an incumbent with an outright majority) to engage in fake news. It can only backfire—however, it can benefit the challenger who can throw any accusation (as president Trump did in an earlier election) and the incumbent then has to try and prove the impossible.

On March 15, 2018, 108 economists and scientists released a letter titled, Economic Statistics in Shambles, published in the prestigious Economic and Political Weekly, that accused the Modi government of suppressing data. It is worth quoting a few sentences from the letter.

“For decades, India’s statistical machinery has enjoyed a high level of reputation for the integrity of the data it produced on a range of economic and social parameters. It has often been criticised for the quality of its estimates, but never were allegations made of political interference influencing decisions and the estimates themselves. Lately, Indian statistics and the institutions associated with it have, however, come under a cloud for being influenced and, indeed, even controlled by political considerations.

In early 2015, the CSO issued a new gross domestic product (GDP) series (with the revised base year 2011-12) that showed a significantly faster growth rate for 2012-13 and 2013-14 compared to growth under the earlier series.”. The complaint goes on to add, “In fact, any statistics that cast an iota of doubt on the achievement of the government seem to get revised or suppressed on the basis of some questionable methodology”.

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The new GDP series, which is a major part of the complaint, replaced the existing industry-level data (as compiled by the CSO as Annual Survey of Industries (ASI) and released with a two-year lag) by the more timely ministry of corporate affairs (MCA) balance sheet data on Indian industry.
Unfortunately, these data do not go further back than 2006 and hence the controversy on GDP back-series which has arisen. On March 14, 2019, a day before the news of ‘suppression of data’ and ‘political interference’ towards manipulation hit the headlines, the first revised estimates of ASI data for 2016-17 were released on the CSO website.

The preliminary estimates were released on March 6. This rich source of data is examined below to shed some light on concerns raised by the 108+ eminent economists and scientists. In my experience, I have never come across such criticism, let alone accusations, ever before. The list of economists who signed the list are a virtual who’s who of the Indian economic establishment (both domestic and NRIs). I know many of them, and I have enormous intellectual respect for several of these eminences. What they say has to be taken seriously by all concerned, especially by the government.

In my next article, I will examine, in detail, the accusations concerning the Periodic Labour Force Survey (PLFS) for 2017-18 which the government has stubbornly, and inexplicably, refused to release (till date). Regardless of any complaints that the government may have against the ‘accuracy’ or representativeness of the PLFS data, there is absolutely no basis for not releasing the data. In this regard, I am with anyone who states that the unit-level data (and not just the report on the PLFS data) should be released immediately. The government should realise that when it does not release data as per schedule, the immediate, and not incorrect, assumption is that the government has something to hide.

One of the biggest economic stories of our time (both in India and abroad) has been the decline in inflation rate to very low levels. This process has been going on in the world for 20+ years; its influence was masked in India by the extraordinarily high inflation inflicted on the Indian economy by the UPA governments 1 and 2 (especially 2). Curiously, when it comes to evaluation of GDP growth rates, the 108+ economists are quick to point out (in separate writings over the years) that India has benefitted from the oil price decline in the Modi years post-2014. But they don’t point out how GDP growth benefitted from explosive global growth in UPA-1; and how the Indian macroeconomy was severely affected by high inflation post the 2008 financial crisis.

The attached graphic looks at ASI data on three important economic variables—net value added, wages to workers, and the number of workers. In addition, data on two price indices—CPI and WPI—are reported. The latter two are needed to analyse the ASI information in terms of real growth in value added, and real incomes of workers. Worker income is deflated by CPI; industrial value added is deflated by WPI for manufacturing. Data are available for only three of the Modi years, 2014-15 to 2016-17; past ASI data are available since 1981. If three years post- and pre-2014 are taken, then a valid comparison can be made between the UPA-2 years and the NDA-2 Modi years.

Note that the terminal year for the Modi period is 2016-17 i.e, the year of demonetisation. This selection of the demonetisation year biases all the results in an anti-Modi direction; all critics believe that demonetisation caused a severe dent in employment and output. What does the data show? First, the unambiguous record on decline in inflation. CPI inflation declined by 400 bps, from an average of 9% to an average of 5%. WPI for manufacturing declined at a slightly faster rate by 420 bps. Aggregate WPI inflation (not used in our computations) declined at a faster pace of
710 bps.

Now let us look at output growth. The 108+ experts believe that the new 2011-12 series is flawed. The new series is based on the MCA industrial data. But here, even according to the old ASI base, industrial growth in value added during the Modi years was at a substantially higher pace than the UPA-2 years—7.5% for net value added and an acceleration of 440 bps a year, on average. One of the suspicions of the 108+ economists is that GDP growth rate in 2016-17 was artificially and superficially boosted.

But what the old and ostensibly more reliable ASI data show is that the Modi years have been rather good for output (GDP) growth. But what about wages to workers?—the allegation is that there hasn’t been much increase in wages. It is true that nominal wage growth has declined from 13% to 10.5%. But, inflation declined by a higher amount, thus yielding faster growth in real wages.

But what about jobs? Job growth must have been terrible, which is why the PLFS data are being suppressed as per the dissident economists. But, according to the ASI data, employment has grown at more than twice the rate in the three NDA-2 years than in the preceding three UPA years. The ASI employment data are also consistent with other sources of formal job data such as the EPFO database. It should also be noted that, around the world, establishment surveys are being preferred to household surveys on jobs; on unemployment, the only source is household surveys.

We conclude as follows: There is no denying the reality that the government has delayed the release of the PLFS data. For that, the government should be criticised. The rest of the rather extreme accusations made by responsible academics need to be examined by other academics—were they made in haste or after honest, non-ideological considerations? Only future research can help identify.

The writer is Contributing editor, Indian Express and consultant, Network 18. Views are personal Surjit tweets @surjitbhalla

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