Economic Advisory Council debunks Arvind Subramanian's GDP claim; to present point-by-point rebuttal

The Economic Advisory Council to Prime Minister (EAC-PM) has raised questions over GDP overestimation claims by former Chief Economic Advisor (CEA) Arvind Subramanian. The Bibek Debroy-led advisory body said that it would examine the claims made by Subramanian in detail and "come out with a point-by-point rebuttal in due course".

Subramanian, in his paper "India's GDP Mis-estimation: Likelihood, Magnitudes, Mechanisms, and Implications" and a subsequent media article, had claimed that India's GDP growth estimates from 2011-12 to 2016-17 were exaggerated by 2.5 percentage points. He had blamed the change in methodology for calculating the GDP numbers for this discrepancy.

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"It is worth noting that the Base Year of India's income calculations shifted to 2011-12 on the basis of recommendations of several committees with experts in National Income Accounting. It was on the basis of these recommendations, started in 2008, that the Government implemented the change from January, 2015," the EAC-PM said in a statement.

Therefore, it is wrong to suggest that the views of experts have not been taken into account while changing the Base Year or weights or switching from Annual Survey of Industries (ASI) to Ministry of Corporate Affairs (MCA) 21, the council further added.

The panel also raised questions over Subramanian estimating India's GDP on the basis of cross-country regressions. "A country's GDP is in nominal terms and any exercise should be on the basis of nominal figures, not real growth rates," the council said in its statement.

The EAC-PM noted in its statement that Subramanian might have raised these during his tenure as the CEA, "though by his own admission, he has taken time to understand India's growth numbers and is still unsure".

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The full text from the statement by EAC-PM is as follows:

The former Chief Economic Adviser (CEA), Dr. Arvind Subramanian, has published a paper "India's GDP Mis-estimation: Likelihood, Magnitudes, Mechanisms, and Implications" in June, 2019, on the basis of which he has also published an article in Indian media, making strong claims about India's real GDP figures between 2011-12 and 2016-17. It is worth noting that the Base Year of India's income calculations shifted to 2011-12 on the basis of recommendations of several committees with experts in National Income Accounting. It was on the basis of these recommendations, started in 2008, that the Government implemented the change from January, 2015. Therefore, it is wrong to suggest that the views of experts have not been taken into account while changing the Base Year or weights or switching from Annual Survey of Industries (ASI) to Ministry of Corporate Affairs (MCA) 21. In his paper, Dr. Subramanian has used cross-country regressions to estimate what India's GDP should be. Using cross-country regressions to estimate GDP is a most unusual exercise, as is the suggestion that any country's GDP that is off the regression line must be questioned. The proxy indicators that he used can also be questioned. Nor does this exercise allow for GDP increases on the basis of productivity gains. A country's GDP is in nominal terms and any exercise should be on the basis of nominal figures, not real growth rates. The Economic Advisory Council will examine in detail the estimates made in Dr. Arvind Subramanian's paper and come out with a point-to-point rebuttal in due course. At the moment, it is felt that any attempt to sensationalize what should be a proper academic debate is not desirable from the point of view of preserving the independence and quality of India's statistical systems, all of which the former CEA is familiar with. These are certainly issues that Dr. Subramanian must certainly have raised while he was working as CEA, though by his own admission, he has taken time to understand India's growth numbers and is still unsure.

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