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Abu Dhabi, UAEMonday 17 December 2018

Narendra Modi government tweaks India's economic figures ahead of 2019 elections

Revision puts GDP growth under the BJP government higher than when its Congress rival was in power

Indian Prime Minister Narendra Modi at the G20 Summit in Buenos Aires on December 1, 2018. AFP
Indian Prime Minister Narendra Modi at the G20 Summit in Buenos Aires on December 1, 2018. AFP

How fast has India’s economy grown this decade? It is getting increasingly difficult to tell after Prime Minister Narendra Modi’s government released “recalculated” Gross Domestic Product (GDP) figures last week.

The revised figures show India’s economy expanding faster during Mr Modi's first four years in office than during the previous five years under a government led by the Congress party, in a complete reversal of previous findings.

India's GDP calculations are conducted by the government's Central Statistics Office (CSO).

The recalibration exercise by the CSO lowered India's average annual GDP growth from 2009-14, when the Congress was in power, from 7.7 per cent to 6.7 per cent. The average annual growth under Mr Modi stands at 7.35 per cent.

The most drastic revision was for the 2010-2011 financial year, which lowered growth from 10.3 per cent to 8.5 per cent.

The new figures strengthen Mr Modi's position six months before the next general election is due, but the fact that his government revised the methodology for calculating GDP is one of several signs that it is anxious about its economic performance, analysts say.

Revising the methodology is in itself not the problem, said John Raja, the founder of How India Lives, a company that analyses public data. As economies change, GDP calculations must change as well.

Ordinarily, revised methodologies are detailed in extensive documents released by the CSO, but no such document has been released in this case, Mr Raja said.

“And the claims of higher GDP growth are not reflected by ground realities. If growth is high, companies should be out there, recruiting. Where is any recruitment happening now? Those numbers are low.”

The CSO said it calculated the new figures using the April 2011-March 2012 financial year as the base, rather than April 2004-March 2005 as was the earlier practice. Base years are routinely changed to reflect structural shifts in the economy, but the choice of 2011-12 had the convenient effect of shrinking GDP figures during the Congress’ tenure.

At a press conference on Wednesday, Rajiv Kumar, the vice chairman of the government’s planning body Niti Aayog, said the CSO also changed its sources of data for various sectors of the economy. For example, to track the expansion of the telecom sector, CSO chose to use minutes of telecom usage rather than the number of subscribers, he said.

The new methodology is “internationally comparable”, Mr Kumar said. The intent was not to “mislead or try and do something purposefully”.

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The presence of Mr Kumar, a political appointee, at the release of the new data from the CSO was itself a contentious issue. Planning bodies have traditionally maintained a distance from the technical work of the CSO.

Further, the CSO's revised figures contradict a recent report by another government agency.

In August, an academic committee appointed by the government to link economic data under the old and new methodologies reported that the economy grew faster under the Congress than under Mr Modi. It said India clocked GDP growth of more than 10 per cent in at least three of the 10 years for which the Congress was in power before Mr Modi took office in 2014.

The government has since dismissed that report as a draft, and Mr Kumar said its methodology was flawed.

The Congress reacted to the new GDP figures with anger. “The Modi government and its puppet Niti Aayog want the people to believe that 2+2=8,” Randeep Surjewala, the Congress’ chief spokesperson said in a statement. “Such is the gimmickry, jugglery, trickery and chicanery being sold.”

Mr Modi was elected in May 2014 after campaigning on the promise of reforming the economy and more jobs. But no significant reforms have materialised, and his pet policies of demonetisation and a complex new sales tax regime temporarily slowed economic growth.

While roughly 5 million Indians enter the workforce every year, just 1.43 million new jobs were added in 2017, according to the Centre for Monitoring Indian Economy, an independent think tank.

Typically, job creation data looks at employment in the “organised” or “formal” sectors, counting companies that have 10 or more workers. But in March the government decided to include establishments in less formal sectors, with fewer than 10 workers. A man setting up his own kiosk selling soap and toothpaste could, in theory, be counted as a new employee, providing a fillip to jobs data.

Keen to push the economy faster, the government got into a tussle with the central bank earlier this year. While the Reserve Bank of India (RBI) was focused on reining in inflation and containing the slabs of bad debt in the country’s public-sector banks, the government wanted it to lower interest rates to stimulate lending and economic activity.

Last month, the government proposed new rules that would enable it to supervise the RBI more tightly, eroding its independence. The central bank resisted, leading to tensions between the two institutions.

Mr Raja said there were other indicators by which to assess economic growth, such as the index of industrial production or export statistics, “but they’re sending very mixed signals about how healthy the economy is".

"And on top of that, if the government cherry picks a few numbers, then it presents a very distorted picture of the economy,” he said.