statisticians, including theformer
ChiefStatisticianPronabSen,have
justified with some merittheargu-
mentthatan emphasis on value
wouldcapturebettertheeffectthat
changes in quality,productivity and
indeedtheintroductionof entirely
newproducts would haveon the
realistic estimation of nationalout-
put.Intuitively,theintroductionof
newvariantsof cars,computers with
bettercapabilities, mobilephones
with enhanced features, or steel
plants with better automation,
whichimplyin somecases thata
similarcomparableproductdidnot
existearlier,indicate thata simple
estimate basedon quantitiesof out-
putmisses a significant aspectof the
national output.Logically, theem-
phasison value,ratherthanquant-
ity,wouldappearto be better at
capturingnotjustimprovementsin
products butalsothegainsthatac-
cruefromenhancementsto quality
andproductivity.Thus,primafacie,
onecannotquarrelwiththisshiftin
methodology. The government’s
claimthatthismethodology is fol-
lowedthe worldoveris alsotrue.The
problemappearsto lie elsewhere;
thesecondmajorproblem—andan
apparentlyintractable oneat that—
is the sourceof datathatare usedto
compute thenationaloutput from
whicheconomic growth ratesare
derived.
DUBIOUS DATA
Theshiftto the newmethodology for
the2011-12series was based on a
shiftto a completedependenceon
theMinistry of Corporate Affairs
(MoCA) for datarequiredfor com-
putingGDPemanatingfromthe in-
dustries andservicessectors.Thisis
wheretheproblemsbeganto get
worseto a pointwherethe computa-
tionof GDPhasbecomesuspectto
notonlyeconomistsin Indiaand
acrossthe worldbut to investorsand
the general public.Unlike the earlier
estimates of industrial output that
werebasedon datasourcedfromthe
AnnualSurvey of Industries, the
MoCAdatabase(termedMCA-21)is
basedon whatregistered entitiesfile
withtheMinistry.Evidently,these
arelittlemorethanbalancesheets
filed by Indian companies;andany-
onefamiliarwiththequality of bal-
ance sheets filed by even large
corporates,let alonethousandsof
smallerones, knowshowreliable
theseare.
Tocompoundmatters,theNa-
tionalSampleSurveyOffice(NSSO)
recently revealedthata significant
proportion of registered unitssimply
didnotexistandhadto be weeded
out. One Bengaluru-based small
businessmantoldFrontlinethatall
oneneeds is an address andan elec-
tricitybill confirmingthataddressin
orderto register as a unit. “Anelectri-
citybillwitha claimedaddresscan
be purchasedfor a pricein India,and
onceyouhavethis,youareup and
runningas a business uniteven
thoughyoumaybe producingzero
value,”he said.He pointedoutthat
the mushroomingof such“bogusen-
tities”hadquickenedafterthe intro-
ductionof the goodsandservicestax
(GST).Althoughsuchentities are
aimedat creatinga channelfor fake
andbogustax invoicesfor claiming
fraudulenttax credits,thefactthat
theseunitsareregisteredas active
entitiesalsofalsifies thetrueextent
of economicactivityandhence,the
valueof output, thatis, GDP.From
here,it is onlya smallstepto mis-
measure growthrates.Clearly, the
MCA-21database seededwithbogus
entitiesin largenumbersnotonly
missescrucialactivitybutalsoover-
states activity when none is
happening.
It appearsthatthequestionofgrowthrates—apolitically sensitive
issueto a politywhosebasicquestion
in theModiyearsis whetherhe has
deliveredbettergrowthwhencom-
pared with his predecessor—be-
comesevenmoreintractablewhen
theMCA-21database is usedas the
sourceof the rawdata.In orderto do
this,oneneedsthenewdatato be
extendedbackwardson similarand
comparable lines.Buta fundamental
changein methodology thathas been
effectedin thenewseries, withan
emphasis on the valueof output,re-
quiressimilardatafromtheearlier
periodto alsocontaincomparable
data. And, it appears that the
MCA-21databasesimply doesnot
havethiswithanydegreeof robust-
ness.It appearsthatquestionable
valueassumptions made fordata
fromthe pasthavedistortedthe data.
Thisimplies thattheunderstate-
mentof valueof outputfromthe past
hasresultedin an overstatementof
growth.Thisexplainsthe illusion of
growthin the Modiyearsbased on a
statistical artefact.
To make matters worse, the
MoCAhas not been transparent
aboutthemannerin whichit has
“adjusted”thedatait hasgathered.
Economistsof long-standingreputa-
tiondealing withIndianGDPstatist-
ics—such as Professor R.
Nagaraj—have complained thatthey
do nothaveaccess to unit-level data
in orderto checkfor inaccuracies or
errorsin thedatagatheredby the
MoCA.Aboveall,theMoCA’sown
standing as a statistical office is
highlysuspect,primarilybecause it
wasneverconfigured to performthis
important statistical function.It was
designedprimarilyto overseethe
compliance of registered Indian
companies,a taskin whichit has
obviouslyfailed,giventhe risingtide
of corporatemalfeasance andfraud.
When the new serieswasre-
leasedin 2015, most professional
economistswereincredulous. Sub-
ramanian himselfmadea fewnoises
abouthavingto checkthe compatib-
ilityof the newestimateswithother
observationsabouttheIndianeco-
nomy thatsuggested a far more
lacklustre performance. Even the
thenReserveBankof India(RBI)AsCEA,he
urgedfi scal
prudenceand
rectitude,when
thedatainhis
ownhindsight
warrantedan
oppositecourse.