Did India Over-Estimate its Growth Rate?
In a research paper India s GDP Mis-estimation: Likelihood, Magnitudes, Mechanisms, and Implications former chief economic advisor Arvind Subramanian has claimed that India s economy grew at a much slower pace between 2011-12 and 2016-17 (at about 4.5%) than the official estimate of 7 per cent.
Observations made in the Research Paper
- India s GDP growth was overstated by about 2.5 percentage points per year in the post-2011 period.
- The former CEC arrived at the conclusion by the means of an index created by based on the data from 17 indicators that are strongly correlated with GDP growth and compared it with the official GDP data
- The indicators like electricity consumption, vehicle sales, airline passenger traffic, foreign tourist arrivals and manufacturing were chosen since they are produced independently of the CSO, which compiles the GDP data.
- His observations state that the indicators moved closely with the GDP between 2001-02 and 2011-12 and showed a wide divergence from 2011-12 to 2016-17.
- He also states that India was compared with 71 other countries on how a set of indicators (credit, exports, imports and electricity) is related to GDP growth where India proved to be an outlier here.
Overestimation and Impact on Economy
Any overestimation together with denting the image of the country will result in severe repercussions for the economy. Overestimates could have resulted in interest rates being higher than they should have been if they were based on the lower GDP numbers. A slow-growing economy would have prompted the government to take up issues related to banking, unemployment or agriculture much earlier than it did.
The government has defended the GDP numbers and has stated that the numbers were based on a statistically rigorous method that both the International Monetary Fund (IMF) and the World Bank have validated.
Category: Economy & Banking Current Affairs
Topics: Credit • Economy • electricity consumption • exports • foreign tourist arrivals • GDP • IMF • imports • Interest Rates • International Monetary Fund • manufacturing • vehicle sales • World Bank
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