By Anjan Roy
As the news was broken by NSO of a 7.8% growth in GDP in the first quarter of 2027 financial year, questions were raised about its veracity. The government responded by saying it is not a spun story.
This is nothing unprecedented. A controversy over the GDP figures is not new or novel. It happens every time some spectacular figures are reported or when some major revisions are introduced.
National income statistics is a complex and or India a vast data compilation exercise. There are detailed technical aspects of national income estimates. But two issues generally create controversy.
First, these compilations are by their very nature compiled with reference to some milestones —these are the base year. The base is year is relevant for price index compilation, manufacturing indices or overall national income statistics.
To keep relevance with the times, the base years are invariably updated. They are taken forward to make the comparisons for relevant and reasonable. Because an economy changes and its all major variables change, like the pattern of consumption, goods produced or other markers.
The major controversy around the 7.8% first quarter growth estimate is that the relevant figure for the corresponding period in the previous year has been changed. In fact, the first quarter GDP estimate previous year was lowered by a as much as Rs6 lakh crore. Naturally, this year’s estimate should jump to that extent when compared with the first quarter estimate of previous year.
This time the debate was queered by former finance secretary, Subhas Garg, who claimed that the high growth figure was concocted by revising the corresponding first quarter of the previous financial year. Why was it changed or revised downward at all.
Government economists pointed out that the downward revision was because the base year for GDP calculation was updated in February this year. While previously the base year was 2011-12, it was revised to 2021-22. This is a common practice in calculation of various indices and statistical estimates and nothing unusual.
The solution would be not to quarrel over updation of the base year. But in computing the first quarter estimates on the same basis as the first quarter of previous year and then comparing. This can then be done once or twice just for the sake of seeing the effect of revision. But it cannot be continued ad infinitum.
The second issue over the current controversy was use of “deflators”. These might sound simple concepts but involve complicated computational gyrations. There are deflators and deflations at various stages and levels of aggregation.
A deflation is a simple operation involving deflating figure for a year by the inflation rate. This is done to get an impression of the real change. Economic values are in terms of some units, in most cases, in terms of money. So, what the economists do is to say whether a figure is in terms of current price or constant price.
The constant price figures are estimated by subtracting the relevant inflation level from the current level. There is almost always controversy around the use of deflators. Why not more or why not less? Questions are also raised about conformity with the inflation rates in constructing deflators.
The latest GDP figures are also being questioned about how reasonable are the underlying deflation factors in arriving at a reasonable constant price value. Additionally, deflation factors are used at different levels of aggregation and therefore these would have to be relevant and reasonable.
Above all, the entire exercise will have to be consistent. Self-contradictions in the inherent computation or structural framework would vitiate the whole estimate.
The good thing is that controversies bring out hidden issues which are otherwise not apparent or come out from the cupboards. In this case as well, the questioning of the figures has brought out into the open how far the corresponding figures have been revised upward or downwards on what grounds.
Noted economist and now a public intellectual figure, Amartya Sen, had written a book about “The Argumentative Indian”. His thesis was that India was inherently a society prone to argumentation. Good that we argue to bring out the hidden traps. (IPA Service)
