The first estimates of independent India’s national income were prepared by a stellar team led by the national accounting pioneer Moni Mukherjee. Their work was supervised by a committee led by the renowned statistician PC Mahalanobis, and had two world-class economists as its other members: VKRV Rao and DR Gadgil. The committee was advised by the likes of Simon Kuznets and Richard Stone, who later won the Nobel Prize in economics.
Despite the involvement of these storied names, the national income estimates faced criticism. The people involved in the exercise themselves expressed skepticism about some of the national accounts data.
Revisions in the national accounts series (NAS) in subsequent decades were also followed by intense debates and passionate criticisms. Yet, the debate around national income or gross domestic product (GDP) numbers was never as polarized as it has been over the past decade.
Almost immediately after the last NAS revision exercise concluded in 2015, critics from within and outside the government expressed doubts over the accuracy of the GDP figures. Questions were raised about the manner in which a new corporate database (MCA-21) was plugged into the NAS series, the use of formal sector proxies to estimate informal sector growth, and the deflation strategy used to arrive at the real (inflation-adjusted) growth numbers.
The critics demanded that the MCA-21 database be opened up for public scrutiny, and that the new methodology be reviewed by an independent team of statistical auditors. The statistical establishment dismissed these demands, and in doing so, kept the controversy alive.
The Niti Aayog fanned the flames further when it decided to intervene in the preparation and release of the much-delayed “back-series” in 2018. The official back-series “corrected” the growth record of the United Progressive Alliance (UPA) government, contradicting an “experimental” back-series published in a National Statistical Commission (NSC) report earlier.
Niti’s involvement in a technical exercise raised doubts over the credibility of the numbers.
The recent release of a fresh NAS series shows that the government has learned the right lessons from the GDP controversy. Statisticians had to make heroic assumptions in the previous revision because of several glaring data gaps. Much before the current revision, there was a concerted effort in filling those gaps, particularly for the informal sector. The methods used in estimating corporate sector output and real (inflation-adjusted) growth estimates were re-examined, and a number of studies were undertaken before the new series was finalized. The policy establishment gave the statisticians a free hand, and the statisticians made good use of it.
The national accounts division (NAD) also put in a greater effort in communicating the likely changes, through discussion papers and data user conferences, well before the new series was unveiled on February 27. Unlike last time, NAD has set clear timelines for the release of the back-series and the detailed “Sources and Methods” document.
The new series shows that some of the criticisms of the previous series were justified. An improved methodology has shrunk the share of the (non-financial) private corporate sector. It has also shrunk the overall size of the economy. Improved sources and methods have led to a bump in the share of the agricultural sector. Partly driven by that, the share of the informal (or household) sector has gone up.
While the new series portrays a more steady growth rate compared to the previous series, it also raises discomfiting policy questions. The new figures puncture the hype about rapid “formalisation” of the economy. The new series has also raised the public debt-GDP ratio (since the denominator has declined), constraining government borrowing, and making fiscal management more difficult. Yet, unlike the last time, the chief economic advisor to the finance ministry endorsed the new figures soon after they were published.
The road ahead for the statistical establishment will be smoother if they honestly acknowledge the limitations of the current series, and are open about the sources and methods they have used. If Mahalanobis and Mukherjee could acknowledge the uncertainty inherent in their estimates, there is no reason why the current lot should feel shy about doing so.
Although the deflation strategy in the new series appears more rigorous, it is far from perfect. The “Sources and Methods” document should include information on alternative growth rates for different sub-sectors using different deflation strategies, and explain why a particular deflation strategy was preferred.
The major economic databases used in the NAS series — including the improved MCA-21 database and the goods and services tax (GST) database — should be opened up for public use. This would bolster NAD’s credibility, and help citizens, firms, and investors understand the Indian economy better.
As in other large economies, India must also find a way to institutionalize regular audits of key statistical products such as the GDP, the consumer price index (CPI), and the index of industrial production (IIP). That would ensure that methodological debates do not become excessively polarized.
Pramit Bhattacharya is a Bengaluru-based journalist. The views expressed are personal
