Dear Arvind Subramanian, India’s economic growth rate has not been overestimated. Here is why I am countering you

With no malice to you, let me come straight to the point. While conflicting opinions are the hallmark of mature democracies, to wrongfully castigate the Modi government on the Gross Domestic Product (GDP) methodology — after having served as its chief economic advisor — may be your idea of unfettered freedom of expression, but there is another word for it that fits the bill — misguided opportunism.

The recent irresponsible statements made by you, alleging that GDP growth was at least 2.5% lower in some years in the last five-odd years, without any supportive data, but purely backed by vested conjecturing, speaks poorly of your professional propriety, or what little may indeed be left of it. That you are completely wrong in downgrading India's GDP numbers and the revised methodology is established in this piece with pointed rebuttals. Do feel free to challenge my line of argument, if you will.

In January 2015, the Central Statistical Organisation (CSO) shifted to a new GDP series (base year 2011-12) with a different methodology, and in November 2018, it released the back-series estimates for the years 2005-06 to 2013-14. As per this updated series, GDP growth under an inept Congress-led UPA, for a ten-year-period from 2004-05 to 2013-14, was barely 6.7%. In effect, contrary to popular belief, it is amply clear now that the Congress-led UPA dispensation, under an ineffectual Manmohan Singh at the helm, presided over what can be termed India’s lost decade.

The lowest GDP performance ever recorded in the last 15-odd years is now an abysmal 3.1% in 2008-09 — lower than even the earlier estimated level of 3.9%. It is only in the fifth year in 2018-19 that GDP rose to 6.8%. Despite that, the 1st term of the Modi government still clocked an average of over 7.3%, toppling France as the sixth-largest economy in the world in 2018, and en route to replacing the United Kingdom as the fifth-largest economy globally this year.

While in the ten-year UPA era, GDP growth was sub 7%, under the Narendra Modi-led government, GDP growth in Modi's first term has been within arm’s reach of almost 8%, with the CSO estimating real GDP at constant (2011-12) prices, to have come in at ₹141 lakh crore in 2018-19. Real GDP at constant (2011-12) prices, post the latest revisions for 2016-17 and 2017-18, likewise stands at ₹122.98 lakh crore and ₹131.80 lakh crore, respectively.

Further, the addition to GDP at current market prices during 2014-2019 is higher by over 28% than in 2009-2014. India’s nominal GDP grew by ₹59 lakh crore in 2009-2014, but with high inflation, in double digits, under a moribund Congress-led UPA-2. In sharp contrast, under the Narendra Modi-led government, nominal GDP grew by a far higher ₹76 lakh crore and more, between 2014-19, but with much lower inflation, averaging at barely a little over 4%. Even fiscal deficit that was largely over 5% under UPA-1 and 2 was reined in at well under 4% by the Modi dispensation — without compromising growth.

Hence, the debate is settled — GDP growth, under the BJP-led Modi government, was superior to the UPA-2 era, both in terms of sheer quantum and quality of growth, something which Modi naysayers will never admit to.

GDP growth under the last two years of UPA-2 stand at 5.5% and 6.4%, for 2012-13 and 2013-14, respectively, post-back-series announced in November 2018. Before proceeding any further, readers would do well to note that the Congress, which has left no opportunity to wrongfully accuse the Modi government of window-dressing numbers, has maintained a convenient silence on the fact that it was only thanks to the new methodology adopted by the Modi government that the last two years of UPA-2 saw GDP numbers being revised upwards.

Failing this, the average GDP growth for 2012-13 and 2013-14, under the Congress-led UPA-2, would have actually been well below an anaemic 5% under the old methodology. But then, hypocrisy and the Congress have been old friends — you would surely know!

However, the best part is, even based on the conservative November 2018 updated back-series data, the 7.4%-odd GDP growth recorded between 2014-15 and 2017-18, under the first four years of the Narendra Modi government, is much higher than that of the UPA-2 era, for a similar period. What has come as a welcome development is the fact that GDP growth in the fourth quarter of 2017-18 and the first quarter of 2018-19 have been a resounding 7.7% and 8.2%, belying all expectations.

Unlike several times in the past, when the base-year had been changed, with no protests or even a meek squeak from relevant stakeholders in 1970-71, 1980-81, 1993-94, 1998-1999 and 2004-05, the new base year adoption of 2011-12 by the Modi government was met with misguided protests from several sections of the intelligentsia — and a rudderless opposition clutching at straws. The protests are however meaningless as the new series has undergone changes which are aligned with the IMF and the UN system of accounts, in line with global best practices.

In most developed countries including the USA, which has long been your home, the base year is, in fact, changed virtually every single year and they follow what is called a 'rolling base year.' Hence, if the Modi government rightfully changed the base year for GDP estimation from 2004-05 to 2011-12, why the brouhaha? It was in any case long overdue and it is a welcome move.

As an aside, let me ask you, have you ever, as an academic, bothered to question the advance estimates, preliminary estimates, revised estimates, the re-revised estimates, so on and so forth, that are part of a routine exercise before the final GDP numbers are documented in the USA? I am sure the answer would be a convenient "No," for reasons best known to you.

Coming back to India, since the new GDP revision represents the value addition in goods, it eliminates redundant goods and makes way for commodities currently under production. For instance, when computers replaced typewriters, the latter was taken out of the new updated back-series calculation. Similarly, in the communications sector, minutes of usage was adopted for calculations instead of subscriber growth in the earlier series.

Let me remind you here that the findings by the Sudipto Mundle committee, which the opposition and Modi's critics have been harping on, as it portrayed GDP under the UPA era in a bright light, were never authentic conclusions backed by hard data. Mr Mundle is himself on record stating reportedly that the GDP exercise undertaken by him was merely an academic one and more in the nature of academic findings that were not conclusive in nature, due to several limitations.

Hence, the new inclusive back-series GDP numbers with 2011-12 as the base year, jointly released by the CSO-Niti Aayog in November 2018, are the numbers that truly matter and these numbers, backed by logic and data, prove beyond doubt that the first term of Narendra Modi has been the best-ever term, both with respect to the quantum and quality of GDP growth, in the last 15 years.

All relevant data points and numbers pertaining to new GDP back-series can be found on the MOSPI website, debunking claims of ignoramuses who state the Modi government had been opaque. Well, Mr Subramanian, without any supportive data, you have cast aspersions on the high growth trajectory of the last five years, stirring a hornet's nest and what is more, in gross defiance of workplace ethics, in my view, you have also tarnished your own credibility and that of the office of the CEA.

Coming back to the Mundle committee, it seems to have clearly overestimated the growth in Trade, Hotels, Transport & Communication (THTC) during UPA-1 — this gross anomaly is evident from the fact that in real terms, THTC growth was between (14.9-5.7) or an average of 9.1% per year under UPA-1. However, as per the Mundle committee calculations, real THTC growth in UPA-1 was between (22.8-5.7) or an average of 17.1% per annum. Just ponder over it — no data point, past or present, has even been able to support the fact that Wholesale and Retail Trade (WRT) grew at 17% per annum under UPA-1.

The difference between the old numbers based on 2004-05 as base year, and new numbers by the Mundle committee, was a ridiculously high extra 8% growth in THTC in each year of UPA-1. Given that THTC accounted for 18% of GDP, that extra 8% wrongfully worked out to an extra growth of (18.8) or 1.4% per annum under UPA-1, as many have pointed out — and this is where I'd say Mundle lost the plot completely.

Correcting for this illogical deviation, the updated GDP back-series of November 2018 bring down by 1.4% the average GDP growth under UPA-1 from the earlier 8% on this metric of THTC alone.

The harsh reality is, GDP growth under UPA-1 was pretty dismal.

Also, while re-doing the GDP exercise, often the way a commodity is used could change. This alters the final outcome. The thing is, when one is doing such an exercise, one should remember that we all have the same sets of goods and services, though we don’t have prices of those goods and services. Plus, the ways in which we are using different commodities also change over a period of time. The things which were more important five or ten years ago may become less important, or what was less important may become more relevant now. So, when one is revising GDP numbers, we have to use those proxies or combinations that best interpret the evolving consumption and investment patterns in an economy — that is precisely what the updated GDP series announced in November 2018 by the Modi dispensation sought to do.

For instance, one such reinterpretation of data is for the telecom space. Here, the latest GDP series by the Modi government has taken into consideration the usage or minutes of use of telecom services in place of the number of subscribers that was used earlier. In effect, earlier voice traffic or phone calls by the telecom subscriber base was a key reference point, but now, as everyone would agree, the growth in data usage and data traffic has been humungous, so it is only fair that this change in composition from voice to data, and the very manner in which the telecom space has evolved, is rightfully captured. And that is precisely what the reconstruction of GDP with 2011-12 as the base year has sought to achieve.

The 2011-12 base year takes into account additional and important changes in various sectors, particularly the changes related to manufacturing. Also, for instance, between 2004-05 and 2011-12, financial services data have undergone a drastic change because the banking sector has seen a growth explosion with an array of banking products which is reflected in the solid credit offtake numbers in retail loans, housing loans, personal loans and vehicle loans, even when overall credit growth may have been relatively softer in the given years.

Former Chief Statistician, TCA Anant, has said on record that since mining output was linked to trade under the old series data (with 2004-05 as the base year, which the Congress-led UPA regime used for computation), a boom in mining, followed by a bust after 2010-11, when restrictions were imposed by several states, tended to exaggerate the picture of expansion earlier. This had to be corrected, which the Modi government did.

Asked about the growth rates for the UPA era estimated by the Sudipto Mundle panel earlier, current Chief Statistician, Pravin Srivastava, asserted that statistically, the new estimates with 2011-12 as the base year far better capture the country’s economic performance for earlier years.

Interestingly, under the new series, GDP in the last two years of UPA-2 has been upgraded from 4.7% to 5.5% for 2012-13 and from 5% to 6.4% for 2013-14, again falsifying claims by the Congress that the GDP numbers have been distorted deliberately by the Modi government, to paint a poor picture of the UPA days. Had there been any political agenda, the Modi government could have downgraded GDP numbers for the aforesaid years.

The sad reality is that Congress has been led by an irresponsible bunch of rabble-rousers while in the Opposition and doubted the integrity of every institutional mechanism, showcasing their scant regard for democratic processes.

The CSO said the divergence between old GDP numbers with 2004-05 as the base year, and the new updated version with 2011-12 as the base year, is on account of recalibration of the economy with the latest data sets. Also, in the mining and quarrying sector, regular annual returns of the public sector have been used, instead of the Indian Bureau of Mines data used earlier.

The share of the secondary sector in total Gross Value Added (GVA), too has increased in the new series, compared to the 2004-05 series. The increase is largely due to the use of new MCA-21 data and public-sector data in the organised electricity and manufacturing sectors, which was earlier sourced from annual reports of private electricity companies registered with the Central Electricity Authority and Annual Survey of Industries respectively, as per the CSO.

However, the share of the tertiary sector in overall GVA has reduced in the new series with 2011-12 as the base year, compared to the 2004-05 series, used by the Congress-led UPA. This decrease is largely on account of the use of revised methodology and the latest survey data sources of the unorganised sector in the new base. In the 2004-05 base, the main data sources for the unorganised sector were the NSS informal sector survey of 1999-2000 for the trade sector, unorganised enterprise survey results of NSS 63rd round (2006-07) for remaining non-financial service sectors, and the Employment and Unemployment Survey (EUS) of NSS 61st round (2004-05). In the 2011-12 base, the main data source for the unorganised non-financial service sector has been the result of unorganised enterprise survey of NSS 67th round (2010-11) and the NSS 68th round (2011-12).

In effect, the new GDP series showed a lower contribution in the tertiary sector comprising ‘trade, repairs, hotels, restaurants, transport, storage, communication and financial services,’ in overall growth rates. Based on 2004-05 series, the share of the tertiary sector in GVA was 5.8% in 2005-06, which dropped to 4.3%, as per the 2011-12 series. The CSO attributed the lower share of the tertiary sector to several factors such as usage of sales tax index and new series of WPI inflation, as against Gross Trading Income index.

It is needless to add, therefore that, the new GDP series with 2011-12 as the base year, which uses the more comprehensive Ministry of Corporate Affairs (MCA-21) data, versus, say, the earlier data based on Annual Survey of Industries (ASI) is more representative of not only the broader and emerging changes in the composition of the Indian economy over the last few years but is also more accurate as it relies on data that is more updated, authentic and verifiable.

The Congress and other parties in the Opposition have raised a hue and cry on the new GDP numbers only because they clearly show that growth under ex-PM Manmohan Singh was sub-par.

Let us now examine if it is normal for divergence in numbers between GDP and GVA?

Is the Opposition crying foul only because GDP growth under the Modi dispensation is far higher than the UPA regime?

Usually, GDP is higher than GVA, as the former includes indirect tax collections as well. However, the GDP was lower than GVA in 2006-07, 2008-10, and 2011-12.

In fact, a possible reason for this could be the fertiliser subsidy which was scaled up significantly from 2005-06 onwards, following poor agricultural growth, though the attendant benefits were not enough, due to political mismanagement by the Congress-led UPA, which is, however, a different subject altogether. Also, during this period, net indirect tax collections grew by only a measly 6.5%, possibly due to the higher subsidy burden, whereas normally, indirect tax revenue growth is between 2-2.5 times higher than the GDP growth number, if not more. The point to be noted here is that there are no set norms.

Mr Subramanian, you would do well to know that economics is an asymmetrical science and those who accuse the Modi government of changing the GDP methodology need to realise that there have been umpteen instances in the past under the UPA dispensation wherein established co-relation between GDP and other related parameters have moved in different directions.

For instance, as per 2004-05 as the base year, the divergence between GDP and GVA has been the highest-ever in 2010-11, with GDP higher than GVA, by a massive 301 basis points, due to a huge 83% jump in subsidies which momentarily pushed up growth, but at the exorbitant cost of pushing up inflation too. Even the mirage of high growth in 2010-11 could not be sustained in the following years by a thoroughly corrupt UPA-2 as the impact of fiscal stimulus began to wear off.

It is amply clear now that revisions in GDP numbers have happened regularly, even during erstwhile Congress-led dispensations, and singling out the Modi government for a routine revision in line with global best practices is just hypocrisy.

While the GVA gives a picture of the state of economic activity from the producers’ side or supply side, the GDP figure projects the consumers’ side or demand perspective — and under the Modi government, both GDP and GVA have fared exceedingly well.

That said, the brightest news on this front has to be the fact that CSO estimates per capita income in real terms (at 2011-12 prices), during 2018-19, to attain a likely level of ₹92,718, from a level of ₹87,623 in 2017-18. The Modi era has reportedly seen a 45% jump in per capita income in absolute terms, between 2014 and 2018, which is the best measure of the fact that the fruits of higher GDP growth have percolated down to just about everyone, changing the very structure of the traditional 'income pyramid'.

Needless to add, the uniqueness of 'Modinomics' is the fact that consistently high GDP growth has come in without compromising on fiscal discipline or inflation or Current Account Deficit (CAD). CAD, for instance, stood at a dangerous 4.8% in the December 2013 quarter but under Modi's first term, it has averaged at well below 2.5%, which is not a mean achievement. Surely, you can grudgingly acknowledge facts, even if you disagree — or is that asking for too much, Mr Subramanian?

Last but not the least, GDP proxies used by you are a farce to my mind, as they do not account for agriculture that accounts for over a sixth of India's economy, nor do they give due weightage to services, which as a sector accounts for well over 50% of India's GDP. That India has been the fastest growing economy in the world in the last five years is documented by the likes of the IMF and the World Bank and to assume otherwise, based on mere guesstimates, Mr Subramanian, that too after demitting office, is bad counsel.

Yours Sincerely,

Sanju Verma.

Also read: Indian Economy: Stories of a structural slowdown are farce. Data shows Modinomics is propelling India towards strong growth