Wednesday, March 08, 2017

Is India Lying About Its World Beating Economy?

American Enterprise Institute’s Derek Scissors says India’s desire to report faster growth trumped accuracy
. Is India Lying About Its World Beating Economy?


India just announced its October-December GDP figures, supposedly showing it is still the fastest-growing major economy. You should not believe it. Every quarter there are questions about India’s GDP, with this one no exception. But there is a bigger problem: India refuses to publish the full GDP series, so that the world may not be able to trust the Indian government’s claims at all.

Economic growth should be measured by personal or household income. Instead it is measured by GDP, an accounting tool far more relevant for top-down planners than ordinary people. This is hardly India’s fault, but India has done a small bit to make the problem worse.


In January 2015 India revised recent GDP growth figures higher, among other things raising the fiscal year 2013-4 gain from 5% all the way to 6.9%. It is at this point the fastest-growing economy boasts began. Questions about the revision were raised immediately, including by current Indian government officials, because purportedly faster GDP did not fit with many other indicators. (It still does not.)

Since then, however, the new series has become widely used. While the Indian government argues that it better matches global practices, it manifestly fails to do so in an indispensable respect. The back series – the necessary base for calculations of ongoing GDP growth – has not been published more than 2 years later. Technically, we do not know India’s GDP in 2010, or anytime earlier.

The back series was first to be published December 2015, then mid-2016, and now has no apparent due date and will not be complete. The “globally accepted” new approach therefore makes it impossible to assess India’s GDP trajectory, potentially important information for a country aspiring to rapid development.

The best way to proceed in this case was to start from the beginning, applying the new method to a base year as far in the past as possible and generating new data forward from there. The obvious question is how India determined growth when earlier years could not serve as a base? The answer is unfortunately political: the government’s desire to report faster growth trumped accuracy.

It all may sound familiar. India seemingly always has an eye on China. If China pulled a stunt like this, its “world-beating” claims would be roundly ridiculed. India initially had the benefit of the doubt because it is a multi-party democracy with a competitive press. Those are very good reasons, but not good enough. One benefit of an open society is transparency, and the Indian government is being opaque in self-interested fashion.

India had a poor reputation for statistics quality before the GDP revision. It just revised a GDP growth figure from 7.2% all the way down to 6.5% for Q415.There are other, crucial statistics practices, for example concerning rural electrification, that are clearly biased in the government’s favor. In this context, hiding past GDP looks like a continuation of previous behavior.

The central government is willing to offer such detail as revisions to the initial advanced estimates for future GDP growth. We obviously do not have measurements for the future yet, yet the government can generate a figure. What it cannot do is generate GDP for the past, when all measurements have been completed.

The GDP revision is a complex matter and the government has sound responses to some criticisms. But this part is simple: if you cannot even apply your own methodology to the past, why should anyone believe you can apply it properly to the present and future? The government is annoyed with ratings agencies for failing to see India’s progress. It should look in the mirror and properly document a basic element of that progress.

Most people from pluralist open societies want to see pluralist, open India do well. For now, however, India has the same level of economic credibility as a country like Vietnam (which publishes GDP results even before the year ends). World-beating growth? Maybe. Or maybe poorly founded quasi-propaganda.

Derek Scissors is a resident scholar at the American Enterprise Institute (AEI), where he studies Asian economic issues and trends. In particular, he focuses on the Chinese and Indian economies and US economic relations with China and India. He is author of the China Global Investment Tracker and the Chinese Investment in the US Dataset.--Barrons

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