Does the presence of a very large number of shell companies in the MCA-21 database—maintained by the Ministry of Corporate Affairs (MCA)—that is used for calculating GDP in the country negate these numbers? According to a report in Mint, the National Sample Survey Office’s “Technical Report on Services Sector Enterprises in India” found that around a third of the number of units in the MCA-21 database that were being canvassed for another survey could either not be traced or they were wrongly classified. Does that mean the manufacturing/services data that is based on the MCA-21 series is exaggerating the GDP in a big way? Former National Statistical Commission chief Pronab Sen—he was also the first Chief Statistician of India—told BloombergQuint that just because there were a large number of shell companies, it didn’t necessarily mean the GDP was exaggerated as the shell firms were being used by other firms who were producing something but wanted to hide it from the tax authorities; to that extent, Sen argues, removing the data of these shell companies will understate GDP.
It is not clear if the explanation is kosher as no one knows whether the fake bills being generated are equal to or greater than the amount of genuine sales—from service or manufacturing firms—but even when the statistical authorities were debating whether or not to use MCA-21, there were some misgivings. A sub-committee under Professor B Goldar looked into the matter and while it found that the GVA estimates for manufacturing were 29% higher using MCA data as compared to the traditional method using RBI data for FY12—and 34% for FY13—it added a caveat while recommending MCA-21 be used instead of RBI’s sample that was blown up to represent all companies.
The sub-committee did a check on the MCA data for 500 companies that gave data using XBRL—extensible business reporting language—and found that this tallied with their annual reports in most cases. However, it found, that “for unlisted companies no alternative information is available in public domain …Hence any kind of validation exercise is not feasible there”. It concluded by saying “it is strongly recommended that MCA should evolve a system for data validation to ensure the accuracy of online data reporting through MCA 21”.
Whether a reasonable validation regimen has been put in place is not clear, but as economist Renu Kohli pointed out in this newspaper, it is odd that the ‘periphery’—the majority of the unlisted firms in the MCA-21 database—should so consistently outperform the ‘core’; 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%, by 13.9% for construction, 11.8% for trade, etc. The larger changes in data every year based on this data are equally worrying—manufacturing GVA for FY16 was estimated to have grown at 9.6% when the estimates were released in January 2017, but this rose to 12.7% when estimates for the same year were made in January 2018 and to 14.3% in January 2019. In which case, how is one to believe the data? At the very least, those in charge of data-gathering in the government need to come up with a reasonable explanation for this to resolve the apparent contradictions. Of course, the flipside of this is that, were this to be done for the use of MCA-21 data, a similar explanation will need to be given for the jobs data, for the GDP back series, etc.