India's Gross Domestic Product (GDP) growth figures may have been consistently overstated, according to former Chief Statistician Pronab Sen. Sen highlighted a recurring overestimation of approximately 2 to 3 percent in past GDP revisions, suggesting this bias is 'hardwired' into the calculations, only corrected during base revisions.
In an interview, Sen expressed skepticism regarding the latest 7.8% GDP growth estimate for the first quarter. His primary concern lies not with nominal GDP, but with the government's method of converting it into real GDP by adjusting for price changes.
Concerns Over Methodology and Data
Sen's critique extends to the methodology employed by the National Statistical Office (NSO), particularly India's shift to a 'double deflation' system. While acknowledging the conceptual soundness of double deflation—where output and input values are separately adjusted for prices—he questioned the country's capacity to implement it effectively due to insufficient detailed data.
“The problem that we had earlier is that we simply didn't have the data,” Sen stated, adding that it remains unclear whether data collection has improved adequately to support the new approach.
Furthermore, Sen raised concerns about the use of proxy data for inputs and criticized the lack of transparency surrounding the NSO's data and processes.
Debate on the 7.8% Growth Figure
Addressing the controversy surrounding the 7.8% growth figure, Sen dismissed former finance secretary Subhash Chandra Garg’s calculation, which suggested growth was only 2.6% when measured against the original estimate for the previous year. Sen clarified that using an old, unrevised estimate as a base is 'conceptually wrong' once the GDP series base has been updated.
However, Sen also emphasized that GDP revisions themselves are not unusual or indicative of manipulation. Quarterly estimates, he explained, are often based on limited data and become more accurate as additional information becomes available.
Path to Improved Transparency
To enhance transparency and public trust in economic data, Sen proposed that India publish overlapping GDP estimates for a period of five years, utilizing both the old and new methodologies. This, he believes, would enable analysts to better assess the impact of methodological changes on reported growth rates.
Ultimately, Sen stressed the need for a comprehensive back series based on the new methodology. Until such a series is available, he concluded, questions regarding India's historical economic performance are likely to persist.