Governor, Raghuram Rajan, ap-
peared unconvinced. Fundament-
ally,sceptics wereunconvincedthat
theIndian economywasclipping
alongat a nicepaceof morethan 7
percentgrowth rate when most
othereconomicvariablessuggested
otherwise.Crucially,industrial in-
vestment hadslowed downsince
2013,creditofftakeby industrieshad
sloweddown,agriculturalgrowthre-
mainedanaemic,andemployment
hadsloweddown significantly. How
canthesebe happening in a fast-
pacedeconomy—thefastestin the
world,theyasked.
EXPERTSOMERSAULT
Subramanian’s latestpaperindicates
thatit is an attemptto salvage some
credibility, whichwasevidently in-
juredby hisassociation with the
Modiregime. Thecrucialpartof his
latestwork—onewonderswhyhe
couldnothaveachievedthisfrom
withinthe walls of government when
he wasits chiefadviser—restson his
claimthatactuallygrowthis about
2.5percentage pointslowerthan
what theGDP estimatessuggest.
Thisis a staggeringclaim,whichex-
plainswhySubramanianattracted
so muchmedia attentionimmedi-
ately.First,it blowsa hole through
the Modi regime’sclaimthatthe In-
diangrowthstoryis notonlyintact
but is a world-conquering one.
Second, it has immediate policy
ramifications;if indeed,thegrowth
rateis notwhatwe havebeentoldit
hasbeen,thegovernmentneeds to
intervenequickly in terms of provid-
ing support.
ButSubramanian’s methodology
suffersfromseriousflaws, which in
daysto comemaywelldrawflak fromprofessional economists. Signific-
antly,he hasnotaddressedthe well-
knownproblemsassociated withthe
reworkeddatafor theearlieryears,
whichhavebeencomputedfromthe
MCA-21database, or the serious
problems associated withthedata-
baseitself.Instead, he hasbasically
takena set of 17 indicators,whichhe
claimsare“stronglycorrelatedwith
GDPgrowthfortheperiod 2001-
2017”.Thisis a motley groupof vari-
ables,rangingfromsalesof commer-
cialvehicles, airlinepassengertraffic
to the Index of IndustrialProduction
andcreditofftake.
Using regression analysis, he
makesthe claimthatthe overestima-
tionof growtharisesfromthecon-
structof the newGDPseries.Thisis
flawed for several reasons, which
probablyexplainswhySubramanian
claimsthathis paperis stilla “work
in progress” andwhythepaperre-
mainsonlya workingpaperandnot
published in a peer-reviewed
journal.First,theanalysisbasedon
thevariableshe hasassembledonly
indicates thattheymoveddifferently
fromthe national output; it doesnot
precludethepossibility thatgrowth
mayhaveemanatedfromotherareas
thathe may have missed, which
meansthathis construct is methodo-
logicallyflawed.
Moreimportantly,theestimate
of nationaloutput,thatis GDP, re-
quires the statistician to count
everything, notjustpartsof a whole,
which is what Subramanian has
done.Evenmorecritically, by failing
to criticallyexamine thenatureand
qualityof theMCA-21database, he
has missed the elephant in the room!
Thatdatabase appearsto be the fatal
flaw in theIndianGDPcomputing
system,onethatguaranteesa pro-
longedcontroversy.
There is much irony in Sub-
ramanian’strystwithpolicy-craft-
ing.Forfouryearshe presidedas a
keyadviser,urgingfiscalprudence,
rectitudeandrestraint,evenas the
data,in hisownhindsight,would
havesuggestedtheoppositecourse.
Onlyan economist withaccess to the
leversof policycanget awaywitha
somersault of thatkindwithoutbat-
tingan eyelid. $WITHTHETHENFinanceMinister ArunJaitleyin New Delhi in November
2016,whenArvind Subramanianwas CEA.
V.SUDERSHAN