Economist in Govt of India panel questions methodology used for showcasing high GDP

By Rajiv Shah
Three senior economists, one of whom is a member of the Monetary Policy Committee of the Reserve Bank of India, Prof Ravindra H Dholakia, have questioned the methodology adopted by the Government of India in 2015 for calculating gross domestic product (GDP), suggesting, while replacing the base year from 2004-05 to 2011–12, a much higher industrial growth rate has been estimated than what actually is the case.
Apart from Prof Dholakia, who is with the Indian Institute of Management, Ahmedabad, those who have questioned the methodology in recent paper published in a prominent journal are R Nagaraj, who is with the Indira Gandhi Institute of Development Research, Mumbai, and Manish Pandya, who is with the Directorate of Economics and Statistics, Government of Gujarat.

Prof Dholakia

The economists say, the manufacturing sector estimates in the new series are already in the eye of the storm, "since its share in GDP at current prices is larger by about two percentage points (compared to the old series), and its annual growth rates are significantly higher -- with a change even in the direction of growth in some cases".
"For instance", according to them, "For 2013-14, the growth rate of manufacturing gross value added (GVA) at constant prices swung from (-)0.7% in the old series, to (+)5.3% in the new series", underlining, "Such wide variations in the growth rates for the same years reported by the two series of the same publication, expectedly, drew widespread criticisms, especially since the new estimates were quite at variance with other macro correlations."
The economists say, "The changeover to the corporate sector database -- obtained from the Ministry of Corporate Affairs (MCA) -- is said to include activities that were hitherto left out by the Annual Survey of Industries (ASI), on account of the limitation of its approach to data collection."
Suggesting that the ASI's data collection of registered manufacturing sector units, consisting of all factories employing 10 or more workers using power (or, 20 or more workers without using power) based on their mandatory registration under the Factories Act, 1948 is broadly correct, the economists say, "A careful perusal of the ASI’s Instructions Manual ... amply demonstrates that the official contention is largely incorrect."

Screenshot from the paper

Setting aside the claim of those who have worked out the new GDP series to capture a higher growth rate by including manufacturing value added of all enterprises employing 10 or more workers, the paper says, "The ASI, in fact, captures employment, investment, and value added of activities outside of the factory, such as the head office, R&D, sales and services, and so on that are part of the enterprise in most of the cases."
Corroborating these findings with the ASI filled-in questionnaires for select enterprises and their factories operating in Gujarat and elsewhere, the paper says, "Information gathered from the field supports our contention: the ASI, in fact, includes value addition in activities outside of factories such as company headquarters and sales force."
Giving the examples of Ambuja Cement, Navneet Education Limited, Zydus Cadila, Arvind Limited, Tata Chemicals, and Reliance Industries, all of whom have units in Gujarat, the economists say, in two of the six cases (Navneet and Arvind), some discrepancy could be found, but this "cannot be generalised to the ASI as a whole".
Pointing out that in even in these two cases, "it is only a matter of chance and probability", the economists insist, this has happened on account of probability of under-reporting and not confirmed under-reporting."
The examples cited, according to them, "contradict the official claim to a large extent", adding, "Therefore, the very basis of the change in the approach to data collection for estimating manufacturing GDP seems questionable."
The economists state, "Hence the higher share and faster growth rate of manufacturing sector reported in the new GDP series seems to have little justification based on mere coverage of ASI." They emphasize, "There may, however, be other reasons for expecting the size of the sector and its growth rates to be higher, but the arguments put forth against the ASI as under-reporting value added in manufacturing do not seem to be convincing."
The economists say, the new series with the base year 2011–12 shows that the manufacturing sector’s share in GDP at current prices is significantly higher, and its growth rate much higher than those reported in the older series (with 2004–05 base year)", concurring with those who have questioned it.
"The large divergence gave rise to serious doubts about the veracity of the new estimates. Moreover, the reported high growth rates were at variance with other macroeconomic correlates", the economists say.
They add, "Considering the known limitations of the corporate financial database of MCA and its methodological shortcomings, critics have wondered if the revised GDP series has overestimated the size and growth rate of manufacturing sector value added."

Comments

Niranjan Dave said…

People are used to be taken on ride. Look at shameless claims of FM.

September 07, 2018

Manufacturing, services: India's low-skill, middle-skill labour remains underemployed

By Francis Kuriakose* The Indian economy was in a state of deceleration well before Covid-19 made its impact in early 2020. This can be inferred from the declining trends of four important macroeconomic variables that indicate the health of the economy in the last quarter of 2019.

Incarceration of Prof Saibaba 'revives' the question: What is crime, who is criminal?

By Kunal Pant* In 2016, a Supreme Court Judge asked the state of Maharashtra, “Do you want to extract a pound of flesh?” The statement was directed against the state for contesting the bail plea of Delhi University Professor GN Saibaba. Saibaba was arrested in 2014, a justification for which was to prevent him from committing what the police called “anti-national activities.”

Food security? Gujarat govt puts more than 5 lakh ration cards in the 'silent' category

By Pankti Jog* A new statistical report uploaded by the Gujarat government on the national food security portal shows that ensuring food security for the marginalized community is still not a priority of the state. The statistical report, uploaded on December 24, highlights many weaknesses in implementing the National Food Security Act (NFSA) in state.

Why Indo-Pak relations have been on 'knife’s edge' , hostilities may remain for long

By Utkarsh Bajpai* The past few decades have seen strides being made in all aspects of life – from sticks and stones to weaponry. The extreme case of this phenomenon has been nuclear weapons. The menace caused by nuclear weapons in the past is unforgettable. Images of Hiroshima and Nagasaki from 1945 come to mind, after the United States dropped two atomic bombs on the cities.

The soundtrack of resistance: How 'Sada Sada Ya Nabi' is fueling the Iran war

By Syed Ali Mujtaba* The Persian track “ Sada Sada Ya Nabi ye ” by Hossein Sotoodeh has taken the world by storm. This viral media has cut across linguistic barriers to achieve cult status, reaching over 10 million views. The electrifying music and passionate rendition by the Iranian singer have resonated across the globe, particularly as the high-intensity military conflict involving Iran entered its second month in March 2026.

Modi’s Israel visit strengthened Pakistan’s hand in US–Iran truce: Ex-Indian diplomat

By Jag Jivan M. K. Bhadrakumar , a career diplomat with three decades of service in postings across the former Soviet Union, Pakistan, Iran, Afghanistan, South Korea, Sri Lanka, Germany, and Turkey, has warned that the current truce in the US–Iran war is “fragile and ridden with contradictions.” Writing in his blog India Punchline , Bhadrakumar argues that while Pakistan has emerged as a surprising broker of dialogue, the durability of the ceasefire remains uncertain.

Lata Mangeshkar, a Dalit from Devdasi family, 'refused to sing a song' about Ambedkar

By Pramod Ranjan* An artist is known and respected for her art. But she is equally, or even more so known and respected for her social concerns. An artist's social concerns or in other words, her worldview, give a direction and purpose to her art. History remembers only such artists whose social concerns are deep, reasoned and of durable importance. Lata Mangeshkar (28 September 1929 – 6 February 2022) was a celebrated playback singer of the Hindi film industry. She was the uncrowned queen of Indian music for over seven decades. Her popularity was unmatched. Her songs were heard and admired not only in India but also in Pakistan, Bangladesh and many other South Asian countries. In this article, we will focus on her social concerns. Lata lived for 92 long years. Music ran in her blood. Her father also belonged to the world of music. Her two sisters, Asha Bhonsle and Usha Mangeshkar, are well-known singers. Lata might have been born in Indore but the blood of a famous Devdasi family...

'Batteries now cheap enough for solar to meet India's 90% demand': Expert quotes Ember study

By A Representative Shankar Sharma, Power & Climate Policy Analyst, has urged India’s top policymakers to reconsider the financial and ecological implications of the country’s energy transition strategy in light of recent global developments. In a letter dated April 10, 2026, addressed to the Union Ministers of Finance, Power, New & Renewable Energy, Environment, Forest & Climate Change, and the Vice Chair of NITI Aayog, with a copy to the Prime Minister, Sharma highlighted concerns over India’s ambitious plans for coal gasification and the Prototype Fast Breeder Reactor (PFBR).

Labour unrest in Manesar trigger tensions: Recently enacted labour codes blamed

By A Representative A civil rights coalition has expressed concern over recent developments in the industrial hub of Manesar in Haryana, where a series of labour actions and police responses have drawn attention. A statement, released by the Campaign Against State Repression (CASR), said it stood in solidarity with workers in IMT Manesar and other parts of the country, while also alleging instances of police excess during ongoing unrest.

Search This Blog