Expert Speak India Matters
Published on Sep 12, 2018
New GDP series: More questions than answers

The Central Statistics Office (CSO), under the Ministry of Statistics and Programme Implementation (MOSPI), has recently revealed the first quarter (April-June) GDP (gross domestic product) estimates for the current fiscal year. GDP at constant prices, under the new series, has shown a growth rate of 8.2 percent compared to the same period last year, and the new series GVA (gross value added) at constant prices has clocked a growth rate of 8.0 percent over the corresponding quarter in the previous year.

This has come as a relief to the present NDA government, in the middle of a controversy related to the construction of the back-series of the GDP, based on the new 2011-12 series unveiled in 2015, by a government appointed committee. The report of the “Committee on Real Sector Statistics (CRSS)”, as it has been named, contains a section on conversion of old GDP series to the new base year 2011-12 broadly using a “production shift approach”.

The calculated back-series in the report showed that during the previous UPA regime, aggregate GDP at constant prices actually breached the 10.0 percent growth rate barrier, not once but twice. In 2007-08, the GDP growth rate at constant prices was at 10.2 percent and in 2010-11, it was 10.8 percent. Though under the present NDA government the GDP growth rate stayed above 7.0 percent except for the year 2017-18, the rate has been unable to break the barrier of 9.0 percent growth rate even once – as can be seen from the table below.

Growth Rates of New Series GDP/GVA and other variables (in percentage)
Year GVA (Constant Prices) GDP (Constant Prices) Difference (GDP-GVA) in bps GDP MP (Current Prices) GDP Deflator (%) Net Indirect Taxes (YoY%) Fiscal Deficit (% of GDP)
1994-95 4.9 5.4 46 15.9 10.0 10.2 5.5
1995-96 6.3 6.7 40 16.4 9.1 10.6 4.9
1996-97 7.3 6.9 -34 15.0 7.6 3.7 4.7
1997-98 3.8 3.5 -28 10.2 6.5 0.7 5.7
1998-99 6.5 5.9 -55 14.4 8.0 0.4 6.3
1999-00 7.3 8.2 96 11.3 2.9 18.5 5.2
2000-01 3.9 3.7 -27 7.4 3.7 1.0 5.5
2001-02 5.3 4.7 -53 8.1 3.2 -0.5 6.0
2002-03 3.8 3.7 -5 7.6 3.7 3.2 5.7
2003-04 8.2 8.1 -14 12.3 3.9 6.6 4.3
2004-05 7.5 8.2 68 14.6 5.9 15.5 3.9
2005-06 9.8 9.6 -23 14.2 4.2 7.2 4.0
2006-07 10.1 9.7 -38 16.7 6.4 5.8 3.3
2007-08 9.8 10.2 44 16.6 5.8 15.0 2.5
2008-09 7.2 4.2 -301 13.2 8.7 -26.6 6.0
2009-10 9.0 8.8 -15 15.4 6.1 6.5 6.5
2010-11 9.4 10.8 136 20.7 9.0 31.5 4.8
2011-12 7.1 7.0 -9 16.1 8.5 5.8 5.9
2012-13 5.4 5.5 4 13.8 7.9 5.9 4.9
2013-14 6.1 6.4 34 13.0 6.2 10.6 4.5
2014-15 7.2 7.4 26 10.8 3.1 10.5 4.1
2015-16 8.1 8.2 1 10.6 2.3 8.2 3.9
2016-17 7.1 7.1 3 10.8 3.5 7.4 3.5
2017-18 6.5 6.7 20 10.0 3.1 9.1 3.5
* GDP MP = GDP at Market Prices; bps = basis points Source: Report of the Committee on Real Sector Statistics; SBI Ecowrap 20 August 2018 Issue

Interestingly, even in the earlier NDA regime, the GDP growth rate could not breach the 9.0 percent barrier once. Many a time, it is postulated that the consecutive UPA rule at the Centre benefitted immensely from the reforms undertaken by the previous NDA regime. Whatever may be the reason, the fact remains that Indian economy grew at an average of 8.8 percent during the seven years between 2004-05 and 2010-11 (in spite of a low 4.2 percent growth rate in 2008-09), before decelerating in the next few years.

In a way, according to this back-series calculation of GDP under new series in 2010-11 stands out as an exceptional year when not only GDP and GVA growth rates grew rapidly but also net indirect tax collection increased by an unprecedented 31.5 percent. However, prices also showed a distinct upward trend as GDP deflator increased by 9.0 percent and this upward trend in prices turned out to be one of the major reasons for the subsequent UPA downfall. Nevertheless, statistically this seven-year period (between 2004-05 and 2010-11) remains the best performance of the Indian economy in terms of GDP growth rates till date.

Apparently, 2010-11 GDP growth rate is the reason why the political controversy has broken out and ultimately culminated in the withdrawal of the Report of the CRSS from MOSPI portal. But in this ironic political debate about the most popular economic indicator, most of the participants are forgetting that even according to the old series, the GDP growth rate was 10.3 percent in 2010-11 and remained an all-time best GDP growth performance till now.

Coming back to the new methodology of estimating the GDP, dramatic changes have been observed in the values and growth rates of the GDP and its principal constituent sectors. Ravindra H. Dholakia, who is an external member of the Monetary Policy Committee of the RBI and an IIM Professor, argued in an article that there are gaps in the new measurement method of the GDP. The article in the Economic and Political Weekly (1 September 2018 issue) was co-authored with R. Nagaraj and Manish Pandya.

According to the CSO, the new series captures value addition in manufacturing better as it uses the MCA (Ministry of Corporate Affairs) database – which includes activities of industries (like sales, marketing and R&D undertaken at locations other than the headquarters of the industries) that were hitherto not considered by ASI (Annual Survey of Industries). Older series was heavily dependent upon the ASI data to make the final estimates of GDP for industries, particularly manufacturing. However, the EPW article by Dholakia et al states –

“… the article has sought to examine if the CSO’s claims about the shortcomings of ASI are in fact true. A careful perusal of the ASI’s Instructions Manual provided to field investigators amply demonstrates that the official contention is largely incorrect... We have then sought to corroborate these findings with the ASI filled-in questionnaires for select enterprises… Information gathered from the field supports our contention: the ASI, in fact, includes value addition in activities outside of factories such as company headquarters and sales force.”

This has put the new series manufacturing sector estimates, in particular, in the eye of a storm as its share in GDP at current prices comes out to be larger by around 2 percent compared to the old series. Annual growth rates are also significantly higher and fluctuating in the new series. For example, in 2013-14 the growth rate of manufacturing GVA at constant prices swung from (-)0.7 percent in the old series to (+)5.3 percent in the new one. This kind of variation for the same year in two different series is unprecedented and expectedly drew criticisms.

Since the unveiling of the new series in 2015, economists from all quarters – ranging from the right to the left – expressed scepticism about the methodology as GDP estimates were often belying economic activities as expressed in other common indicators like growth in industrial credit or motorcycle/two-wheeler sales. In April this year, the RBI reportedly has switched back to the GDP based measurement of growth estimates dumping the GVA methodology, citing “global best practices”.

Meanwhile, after withdrawing the CRSS Report from the MOSPI portal, the government has clarified that the estimates calculated in the report are “experimental” and not yet “official estimates”. The National Statistical Commission says that it is work in progress. One can only hope this “work in progress” would rescue the important methodology of GDP measurement from the deep cloud of smoke it is currently in, as soon as possible. Till then, it does not seem that political shadow-fighting under the mask of economic sparring will stop very soon.

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Abhijit Mukhopadhyay

Abhijit Mukhopadhyay

Abhijit was Senior Fellow with ORFs Economy and Growth Programme. His main areas of research include macroeconomics and public policy with core research areas in ...

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