Arvind Subramaniam, Raghuram Rajan question veracity of India’s economic data

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Former chief economic adviser Arvind Subramanian’s research findings about India’s rosy gross domestic product (GDP) figures should put to rest whatever little doubt that might have still remained about the need for a thorough and credible review. As it turns out, India’s official GDP data probably overstated growth by as much as 2.5 percentage points in the new series after 2011-12. So, annual growth during the period was about 4.5%, far weaker than the close to 7% figure officially reported, according to Subramanian. It is perhaps fair to question why Subramanian didn’t speak up when he was advising the government. But he has defended himself saying that he did do so internally when his team struggled to string together the loose ends and that it was only after leaving office that he was able to carry out the research that led to his conclusions.

The Reserve Bank of India (RBI) and the government have all along been focusing on taming inflation when actually it was growth that needed attention. Imagine the economy as a slow-moving car being steered by our policymakers, blinkered in the absence of accurate data. What was needed was to step on the gas through policy stimulus. Instead, policymakers ended up slamming the brakes.

Questions over the quality of Indian data have been growing since 2015, when the Modi government made major changes in the way it calculates GDP. Eminent economists, including Raghuram Rajan and Gita Gopinath, have flagged the anomalies in the new system. Concerns grew when it was reported last month that as much as 38% of the companies that were part of a database used in the new GDP calculations could not be traced or were wrongly classified. Subramanian was a key figure in the government, advising none less than the finance minister.

Now that he too has raised a red flag, the government must listen. It must give up its resistance and initiate a review by a committee of independent experts—both domestic and international—to look into the processes being followed and the sources being used in gathering data.

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