GDP Back Series Data: Key Takeaways 

Right away there are three takeaways from the weekend news of release of gross domestic product (GDP) back series. That it isn't the official statistics as yet has already been said over and over again in the social media (at least for those who care to listen).

My takeaways from the report of the committee set up by the National Statistical Commission are as follows:

The back series extending all the way to 1993-94, does not change the trend of the published GDP data for any year

The changes in the data for the years that have caught the public eye, 2007-08 and 2011-12 are just 0.43 and 0.32

Compared to the earlier committee under C Rangarajan, this one headed by Sudipto Mundle has said India’s national income statistics must build distributional statistics, ie income and consumption data at household levels, the cost for which must be borne by the Centre.

Let us examine them in this order. The data set released by the committee on pages 144 and 145 of the report makes it eminently clear that the revision in the GDP series of 2015 was statistically sound. To put it in perspective, the Central Statistics Office (CSO) of the Ministry of Statistics and Programme Implementation had revised the base year for the GDP series from 2004-05 to 2011-12. It had also changed the way nominal GDP is measured.

Post the revisions, it appeared that the Indian economy had fared better under the National Democratic Alliance (NDA) government than under the last few years of the United Progressive Alliance (UPA) government. It was surmised by many commentators that the changes in the base year and the method of measurement that included the new database on companies from the Ministry of Corporate Affairs was not kosher.

In July this year, a committee under Dr Sudipto Mundle to review real sector statistics (non-financial sectors) set up by the National Statistical Commission gave its report. Incidentally, the Commission is an independent body from the Ministry of Statistics and Programme Implementation. That the revision in the GDP series with base year 2011-12 instead of the earlier 2004-05 also had the blessings of the same Commission has, meanwhile, been forgotten in the din about the supposed shoddy quality of the Indian GDP numbers, but let us leave that aside.

The Mundle committee has conclusively demonstrated that the revisions made by the Central Statistical Organisation is accurate and stands all manner of scrutiny. One of the accusations against the CSO offered by the challengers was the supposed delay in the construction of a back series for the new GDP data.

(NB: Whenever a time series has its base changed, it is accompanied with a series based on the new and the old base going back some years to offer a comparison. Often statistics offices also offer a converter to make the comparisons for older years. However, the further back one pushes the series, the less reliable becomes the numbers. In the case of GDP for instance, changes in inflation and the nature of production capacity of the economy set these limits to peer backward)

The report has now made it impossible to carry forward this argument. It has noted that there are three plausible methods to construct the GDP of which “One approach is broadly based on the new GDP methodology by using the base data wherever available (such as MCA-21 data, which is available from 2007-08)”. The second is the production shift approach and the third is to project the old series using the base year 2004-05 forwards up to, say, 2014-15, then adjust it to the 2011-12 base by comparing it with the new series. The last one assumes the economy has not made any changes in the production process in the past two decades — for instance typewriters are still a significant mode of office communication and hence in production and renewable energy is just an academic concept.

Justifiably, the committee has not tried to use the method used by the CSO to peer back into past years. To judge the efficacy of the new GDP series it has used the second one or the production shift approach. It is one that was suggested for India by Prof N R Bhanumurthy of NIPFP and Prakash Singh, ICSSR Doctoral Fellow at the Institute of Economic Growth, Delhi University. It basically recognises the changes in the nature of production of each item included as manufactured, in the GDP statistics. For an economy like India, where the technological frontier has changed rapidly, and with faster speed in the two decades of this century, this shift is essential to recognise the changes in the economy.

This still does not address the questions raised globally about how accurately does a country’s GDP measure the changes in the quality of life. We shall return to those shortly.

Using the production shift approach, the GDP data so obtained from 1993-94 till 2013-14 sits in a perfect match with the older series (2004-05 base year) and the new series. It demonstrates there is no hidden demon in the new series and we should finally drop the cavils about those and get on with life.

What about the two plus 10 scores achieved by the UPA government? Those numbers are just handshaking distance from the ones in the old series. GDP at market price for 2007-08 was 9.80, which now stands corrected to 10.23, a rise of 0.43 per cent. For the year 2011-12 the improvement is even less at 0.32 per cent. They catch the eye for the same reasons as the score of 99 and 100 make a difference in a cricket match. Bragging rights, but not much difference in essence. Ruchir Sharma for instance in a recent interview with ET had expressed surprise if in the current environment, the Indian growth rate has hit 6.7 per cent (2017-18) it should have been much higher when the world economy was booming in 2003-08. The new numbers show India in a little better light, but that is about it. The economy grew at 10.23 per cent at its peak and averaged 9.15 in those five years from 2003-04 to 2007-08.

The turnaround had begun in the last year of the NDA government and there never was any doubt that the government of Dr Manmohan Singh was onto a good thing, till it came unstuck. That is the issue of policy paralysis. From the heady 10.78 per cent in 2010-11, the economy’s growth rate collapsed to 6.96 per cent the year after and even worse 5.46 per cent by 2012-13. There is no change in this trend. The Mundle numbers, if we can call them to distinguish from the CSO series do not change the policy dynamics.

Away from these headline numbers however, the Mundle committee has made some deep comments to unbundle the GDP data into figures which would provide more robust guidance for policy. It would cost money though and which does not seem forthcoming. Statistics gets peanuts from the government. The budget for FY19 at Rs 4,859 crore has remained flat for ages and taking account of inflation has actually shortened. But if wishes were horses, the committee’s prescription is something that needs to be taken up fast. Data like household disposable income will make it possible to actually construct Gini coefficients to measure inequalities. Or those on education would “enable policy makers to assess differential impact of any policy on various household groups”.

As this The Economist article explains GDP was devised for manufacturing economies, today what it measures often do not leave any one wiser. Not measuring the smaller parts, what the committee calls the macro-micro linkages, leads only to sterile debates about whether the GDP rose or fell, leaving the population not clear if they felt better or worse.