ECONOMICS Bloomberg Businessweek July 29, 201929PHOTO:
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DECOMBAT
THEBOTTOMLINE Indiamayhavebeenexaggeratingitsgrowth
rate since 2011, according to a former adviser to Prime Minister
Modi, while unemployment has been underreported.debate since 2015, when the government revised
the data to reflect a change in its methodology.
The jobs numbers are also mired in controversy.
Foreign banks such as Nomura Holdings Inc. and
Goldman Sachs Group Inc. have devised their own
statistical models to give them a better sense of
what’s happening.
Arvind Subramanian served as Modi’s chief
economic counselor from October 2014 until
June 2018, and his stature gives additional weight
to the debate about India’s flawed numbers. In his
research paper, published by Harvard’s Center
for International Development, he argued that a
shift in the way manufacturing output is calculated
was largely to blame for the inflated GDP figures.
Subramanian marshaled alternative data, including
vehicle sales and electricity consumption, to show
that growth was about 2 percentage points lower
on average from fiscal years 2012 to 2017.
Not only the GDP data have come under scru-
tiny. Before the general election, which Modi’s
party convincingly won in May, the government
was blindsided by the leak of an official report
that showed the unemployment rate had hit a
45-year high in the fiscal year ended March 2018.
Authorities were accused of suppressing the infor-
mation to avoid a backlash from voters. Shortly
after, more than 100 economists from India and
abroad took the unusual step of drafting a petition
raising concerns about the possibility of political
meddling in India’s data.
One of them was Amartya Lahiri, who heads
the Centre for Advanced Financial Research and
Learning, a Mumbai think tank affiliated with
India’s central bank. Lahiri says that, given India’s
continued dependence on international capital
to fund a shortfall in domestic savings and invest-
ments, the last thing the nation needs is uncer-
tainty about key economic statistics. “The optics
of the data ecosystem needs to be above reproach,”
he says. “India needs to act now.”
Surveying a country of more than 1.3 billion
people, many of whom work in mom and pop busi-
nesses that don’t pay taxes, is challenging enough.
But the government invests just 0.2% of its annual
budget in collecting economic statistics and has
had a number of top officials quit in recent years
in frustration over political interference in their
work. India still doesn’t produce official reports for
key metrics such as retail sales and housing starts.
“There are so many aspects of the economy that are
not covered,” says Sonal Varma, chief India econo-
mist at Nomura in Singapore. “Given the speed at
which India is growing, it is very important to be
able to measure better.”India’sDataControversyVarma,likemanyofherinvestmentbanking
peers, relies on a host of proxy indicators to estimate
economic activity: for example, automobile and
scooter sales for consumption; credit growth and
corporate profits for investments; and freight and
transportation for services industry growth.
India’s statistics ministry has disputed
Subramanian’s findings. Pravin Srivastava, chief
statistician, says the agency follows international
standards in computing GDP. Several indepen-
dent economists have attacked the research that
formed the basis of Subramanian’s paper. In a
subsequent publication, he defended his work
while noting that he’d raised doubts about the offi-
cial methodology in January 2015 when he formed
part of the government. He also argued that it was
doubtful India could have achieved such robust
growth rates in the face of external and internal
headwinds, including Modi’s decision in late 2016
to ban high-denomination currency bills, a move
that triggered prolonged cash shortages.
For investors, the damage may be already done.
“Foreign investors are concerned about India’s
GDP data becoming politicized,” says Hugo Erken,
a senior economist at Rabobank International in
Utrecht in the Netherlands. “From the interna-
tional perspective, the thinking is that where there
is smoke, there must be fire.”
Subramanian, who’s now with the Washington-
based Peterson Institute for International
Economics, says India must repair the reputational
damage by changing the methodology of calculat-
ing GDP and appointing an independent task force
to ensure the veracity of the numbers.
Modi’s government has an incentive to act
quickly: It’s preparing to stage India’s first
sovereign bond offering in international markets.
One prerequisite for successful sales, which could
raise as much as $10 billion, will be greater trans-
parency of official statistics. —Anirban Nag and
Ronojoy Mazumdar, with Vrishti Beniwal○ Subramanian6.7%
Official
data4.5%
Subramanian’s
calculationAverage annual GDP growth, March 2012-March 2017DATA: BLOOMBERG, ARVIND SUBRAMANIAN