Former Chief Economic Adviser Arvind Subramanian recently claimed in a paper that Inida`s GDP growth from 2011–12 to 2016–17 was likely to have been overestimated. However, the Prime Minister Economics Advisory Council has rejected this claim, stating that his paper would ‘not stand the scrutiny of academic or policy research standards’.
Dr. Subramanian claimed that India growth rate was 4.5% in these years which was shown as 7% .
However after his statement the debate emerged on this topic that is India`s GDP overestimated.
After listening to several Economists speech on this Debate, I concluded that India`s growth rate seems overestimated but post demonetization
The methodology used by Dr. Subramanian is also not up to mark. He has given a very drastic estimate. The methodology used by him can be questioned on many grounds.He has not addressed the methodological issues, but he has used the covariates of GDP and a regression methodology to arrive at this alternative estimate.
That`s the reason why there is a lot of specticism. Dr. Subramanian’s paper is a different matter altogether. What he has done is that he has taken 17 indicators and found that they were very closely correlated with the GDP in the first period, that is, prior to 2011-12, and that most correlations broke down in the second period. This does not come as a surprise because a lot of the indicators that he has taken were used earlier in calculating GDP. They are no longer used now.
When we use the corporate value figures now, that relationship seems to have broken down. Then he assumes that that relationship, had it continued into the second period, would have given a 4.5% growth, and then says that therefore there is a 2.5 percentage points overestimation. That is conceptually wrong. I don’t think it stands scrutiny theoretically.
He then does a cross-country regression and shows that India was pretty much on the average of 70 countries in the earlier period. But in the second period, India is off. There are two problems with that argument. One, in the cross-country regression that he does, he doesn’t give us the confidence interval because we know you are not going to all be on a straight line. You are going to be off it by a certain amount and so there are confidence intervals. He has not actually told us whether in the second period we are beyond, outside the confidence zone. Until that information is given, we cannot say that it is an outlier.
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Former Chief Economic Adviser Arvind Subramanian recently claimed in a paper that Inida`s GDP growth from 2011–12 to 2016–17 was likely to have been overestimated. However, the Prime Minister Economics Advisory Council has rejected this claim, stating that his paper would ‘not stand the scrutiny of academic or policy research standards’.
Dr. Subramanian claimed that India growth rate was 4.5% in these years which was shown as 7% .
However after his statement the debate emerged on this topic that is India`s GDP overestimated.
After listening to several Economists speech on this Debate, I concluded that India`s growth rate seems overestimated but post demonetization
The methodology used by Dr. Subramanian is also not up to mark. He has given a very drastic estimate. The methodology used by him can be questioned on many grounds.He has not addressed the methodological issues, but he has used the covariates of GDP and a regression methodology to arrive at this alternative estimate.
That`s the reason why there is a lot of specticism. Dr. Subramanian’s paper is a different matter altogether. What he has done is that he has taken 17 indicators and found that they were very closely correlated with the GDP in the first period, that is, prior to 2011-12, and that most correlations broke down in the second period. This does not come as a surprise because a lot of the indicators that he has taken were used earlier in calculating GDP. They are no longer used now.
When we use the corporate value figures now, that relationship seems to have broken down. Then he assumes that that relationship, had it continued into the second period, would have given a 4.5% growth, and then says that therefore there is a 2.5 percentage points overestimation. That is conceptually wrong. I don’t think it stands scrutiny theoretically.
He then does a cross-country regression and shows that India was pretty much on the average of 70 countries in the earlier period. But in the second period, India is off. There are two problems with that argument. One, in the cross-country regression that he does, he doesn’t give us the confidence interval because we know you are not going to all be on a straight line. You are going to be off it by a certain amount and so there are confidence intervals. He has not actually told us whether in the second period we are beyond, outside the confidence zone. Until that information is given, we cannot say that it is an outlier.
Two, what he should have mentioned is that almost all the countries in the 70 he has used are using volume indicators to calculate their GDP. And in doing that, they would be closely correlated with what we were doing earlier because we were also using volume indicators and would not be correlated in the second period.
So, I think there are issues. Whether growth was being overestimated or not... my sense is that growth was not being overestimated earlier. That is, up to 2016-17. Subsequent to that, I think it is being overestimated. But by how much, I have no call.
he reason for this is very simple. It is that we do not have direct data on the non-corporate sector. A critical assumption that is made in GDP calculations is that sector-wise growth rates are similar for the corporate and non-corporate sectors. So, you calculate corporate growth rates for each sector and you assume that for that sector, the same growth rate applies for the non-corporate side as well.
Post-demonetisation, the non-corporate sector was known to have been affected much more adversely than the corporate sector. If you continue to use the same assumption that the two are behaving similarly, you are probably seriously overestimating the growth of the non-corporate sector. But this was not the case prior to demonetisation.
