It's time to lay the great Indian GDP controversy to rest
The proposed revamp of India's national accounts series has raised hopes that it will bring an end to the long-running controversy around India's gross domestic product (GDP) numbers. The initial signs are promising. Over the past year, the Union ministry of statistics and programme implementation (Mospi) has released pending surveys, and also engaged data users through a series of public seminars.
At a recent seminar held at the Indira Gandhi Institute of Development Research (IGIDR) in Mumbai, Mospi's national accounts division provided a broad overview of the changes we could expect to see in the new national accounts series. The most important change in the new series may be the manner in which informal sector growth is estimated.
Also Read: Statistical dust-up: The great Indian GDP controversy needn't have arisen
The use of formal sector proxies to estimate informal sector growth has been a longstanding complaint about the national accounts series. In the new series, data from the Annual Survey of Unincorporated Sector Enterprises (ASUSE) and the Periodic Labour Force Survey (PLFS) may be used to estimate the informal sector's output.
Mospi's attempts to inform data users about the forthcoming changes are indeed commendable. However, it needs to do more. There are three key steps it can take to bolster the credibility of the new national accounts series.
The first step would be to release all the underlying data, metadata and documentation in an accessible format. Survey data-sets used in national accounts are already publicly available. Administrative data-sets integrated into the national accounts database should now be opened up to public scrutiny. Such data-sets will help expand our collective understanding of the Indian economy and allay concerns about the GDP-estimation process.
Linking factors to construct a back-series should be provided at the time of the new series' launch, not with a lag. It is also important to publish the detailed 'sources and methods' document without delay. This document should be used to educate data users about variations in the availability and quality of data across different sectors of the economy.
Also Read: India's GDP growth revisions shouldn't raise eyebrows: They're routine
For some sub-sectors, such as banking, national accountants may have access to regular data flows. For other sub-sectors, such as real estate, they may have to depend on patchy data and the use of educated guesses.
The last time national accountants made an effort to communicate these differences was in the 'sources and methods' document for the 1970-71 series. It showed that 95% of value added in the banking and insurance sectors was computed on the basis of current data. But for the transport sector, the same share was just 33%. Sharing such details fosters trust in the country's statistical system and builds an informed community of data users.
The second step would be to provide error margins for each sectoral estimate. Given that the quality of inputs used in the estimation process vary widely, the accuracy of estimates also varies across sectors. In the interest of transparency, data producers should provide error margins for each sector during each release: be it quarterly, advance or revised estimates.
Information on current data availability and sector-wise error margins would allow data users to gauge the reliability of each sectoral estimate. It would also help them predict the likely extent of revisions in the numbers.
Also Read: The state of India's economy is not as bright as GDP data may suggest
In the early days of national accounting, the pioneers in this field—from Simon Kuznets to V.K.R.V. Rao—would regularly publish error margins along with their national account estimates. Sadly, that practice appears to have gone out of fashion. National accountants would gain enormous credibility if they revived that practice.
The third key step to regain credibility would be to set up a research unit within the national accounts division. For a country of India's size and complexity, it is not enough to review and revise national accounting methods and databases once in ten years, or even once in five years. The national accounts research unit should continually probe weak links in the national accounting system and collaborate with experts from diverse fields to come up with better tools of economic measurement.
When doubts are raised on the basis of divergences between national accounts and other data-sets, the research team could try to answer such questions based on careful research. When data users find that the Indian statistical system is offering thoughtful responses to their questions rather than knee-jerk reactions, their trust in the system will go up.
Also Read: IMF outlook: The good, the bad and the unsaid
The research unit could also help states improve the quality of regional estimates. When states find more responsive partners at Mospi, they might be willing to invest more in their own statistical products and processes. Better data from states would in turn ease the path for future national accountants.
The task of re-establishing the credibility of India's foremost economic indicator, GDP, has begun. But we must bear in mind that a long and challenging road lies ahead. The coming months will tell us how far Mospi is willing to travel along that path.
This is the second of a two-part series on India's GDP revision process. Read the first part here.
The author is a Chennai-based journalist.
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