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India's GDP growth overestimated by 2.5%, says former chief economic adviser

Wednesday, June 12, 2019

Arvind Subramanian, Narendra Modi government's former chief economic adviser, has deduced that India's economic growth rate has been overestimated by around 2.5 percentage points between 2011-12 and 2016-17 due to a change in methodology for calculating GDP.

India's gross domestic product product (GDP) growth rate between this period should be about 4.5% instead of the official estimate of close to 7%, he said in a research paper published at Harvard University.

"India changed its data sources and methodology for estimating real GDP for the period since 2011-12. This paper shows that this change has led to a significant overestimation of growth," he said in the paper. The paper comes amidst controversy over the country's economic growth under the new GDP series. The revision in the methodology happened during the first term of the Modi government.

"Official estimates place annual average GDP growth between 2011-12 and 2016-17 at about 7%. We estimate that actual growth may have been about 4.5% with a 95% confidence interval of 3.5 - 5.5%," he said. Manufacturing is one such sector where the calculations have been largely mismeasured, wrote Subramanian, who quit as the chief economic adviser in August last year before his extended tenure was to end in May 2019.

He said the implication of this is: "Macro-economic policy too tight. Impetus for reform possibly dented. Going forward, restoring growth must be highest priority, including to finance government's laudable inclusion agenda. GDP estimation must be revisited."

Last month, official data showed that economic growth slowed down to a five-year low of 5.8% in January-March, pushing India behind China, due to poor showing by agriculture and manufacturing sectors.

"So, post-global financial crisis, growth in India, solid not stellar," he tweeted with a link to his research paper. "My paper focuses on original, technical methodological changes which are distinct from more recent GDP controversies such as "back-casting" and puzzling upward revisions for latest years."

He said the evidence, based on disaggregated data from India and cross-sectional/panel regressions, is robust.

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