Ex-CEA’s claim on GDP refuted by the PM s Economic Advisory Council

Published: June 20, 2019

The Prime Minister s Economic Advisory Council (EAC) has refuted the assertion by the former chief economic advisor (CEA) Arvind Subramanian that India s GDP was overestimated between FY12 and FY17.

Arvind Subramanian s Assertion

His assertion was that India s GDP growth during 2011-17 was over-estimated. The official figures that the economy grew at an average of 7% during the period were inaccurate and in actual, the growth rate was about 4.5%.

Counter Arguments by the EAC

  • Arvind Subramanian s analysis of economic growth is incorrect as it ignores the indicators related to the bulk of economic activity, such as those measuring the agriculture, services, and informal sectors.
  • There has been a hurried attempt to draw conclusions about India s complex economy and its evolution, relying more on private agencies such as Centre for Monitoring Indian Economy (CMIE) while raising doubts about Central Statistics Office (CSO) data.
  • India s GDP estimation methodology was on par with its global standing as a major and responsible economy. Arvind Subramanian had used 17 high-frequency indicators but ignored the representation of the services sector which contributes about 60% to GDP and the agriculture sector (18%) in the analysis.
  • Further, the tax data was overlooked in the assertion of Arvind Subramanian by reasoning that major changes in direct and indirect taxes in the post-2011 period would render the tax to GDP relationship different and unstable and hence make the indicators unreliable proxies for GDP growth.

EAC white paper concludes that attempting to approximate GDP of a big country like India on the basis of some correlations and four variables using simplistic econometric techniques and challenging the existing edifice of data collection is not only demoralising to that dedicated personnel but also technically inappropriate.