By Anjan Roy
The GDP controversy has brought out all facets of truth: truth, half-truths and unstated half truths. To understand what has happened one has to refer to slide 7 of the presentation on the revised GDP figures that the CSO has released. Until 2011-12, GDP was calculated with reference to base at 2004-05.
In 2011-12, the base was shifted to 2011-12. This is nothing unusual and periodically the reference bench mark is revised to more closer period than earlier. CSO has issued a note which explained the detailed reasons for all to see. Previously, even after shifting base, the old series used to be maintained and GDP would be calculated on the old base for some years. Since 2011, this double calculation of GDP series with two different bases was discontinued and on perfectly reasonable grounds.
So we had two different series of GDP figures: one up to 2011-12 (with 2004-05 base) and from 2011 onwards (base 2011-12). Now, CSO is a reputable organisation and all its GDP calculations have to be taken as gospel truth for purposes of any conversation because they are the best estimates of India’s GDP. Now all on a sudden a decision was taken to calculate the back series: that is, calculate GDP figures for the earlier years (2004-05 to 2011-12) on the new base. So we have comparable data from 2004-05 until now. This was only half truth.
But what the CSO or responsible government officials did not do is to calculate the GDP figures on the old base year for years beyond 2010-11 until now to have a similar comparable figure from 2004 onwards. This was the unstated half truth.
What were the findings of this revision of GDP and back series calculation? Calculation of GDP on the new base shows that India’s GDP in the two UPA periods were over roughly 30% larger than stated until then, calculated on 2004 base. Thus for the controversial years when the growth rate is supposed to have been lower than stated earlier, India’s GDP was Rs52.8 lakh crore (on old base), while calculated on the new base it was Rs 83 lakh crore. This applies for all the years from 2004-05 to 2011-12.
Take for instance, in 2011-12, India’s GDP was as big as Rs 87.4 lakh crore computed on new base, compared with only Rs 56.3 lakh crore (computed on old base). So for these years, UPA had presided over nearly a 30-35% larger national income than they actually admitted or knew about.
Now if we hit upon the idea of extending this comparison for the full fourteen year period what happens?
The total GDP today will shrink to around Rs 90 lakh crore (computed on 2004-05 base) against current year’s official preliminary estimate of Rs 130 lakh crore. This is not surely on the basis of rigorous calculation of GDP that CSO does, but seeing the relationship between the two series between 2004-05 and 2011-12. Additionally, assumption is that GDP figures are large aggregates and are based on some structural aspects of the economy which do not change too much in the short term.
So, today the ruling government might just as well be ruling over a far smaller economy than they actually think (calculated on the old base). But, for all you, the growth rate in the last four years after 2014 might show far higher trend than the official figures.
So then, you have options: you can have faster growth on a smaller size of the economy or slower growth on a much larger GDP. That is, your option is to choose between, say, a slower-growing US economy or a much faster growing Nigerian economy. Make your choice.
Now the question is should the finance minister of the country have made tall or short claims about performance of the Indian economy now compared with a period coinciding with the former UPA government. Showing a lower growth in an earlier period and disparaging a former regime is no good strategy.
It was unnecessary. The Indian economy is today in fine fettle. Forget the statistics, look around, go to the markets, talk to people, you will get the feeling of a country moving forward. Houses are being built, consumption rising, cars selling, agricultural production going up, prices are benign. The worries about external payment are none too pressing, as the oil prices are again going down.
Despite whatever the experts are saying, economy has recovered from the shock of demonetisation and introduction of GST. What was the need for taking credit following a half-baked strategy. The fault lies not in the finance minister, but in those who advise him. A finance minister cannot be expected to do nit-picking over detailed statistics. He says largely what his advisers would present to him. If his advisers feed him half-truths, what options he has to offer the full truth. Very little. (IPA Service)