Anything for GDP?: How Modi Govt Fudged the Data

From Jaspreet Oberoi’s personal blog.

For anyone who understands or believes to understand the working of an economy, the latest GDP data release by the Modi government should come as a shock. The main takeaway from the release is that the horrendous exercise of demonetization did not have any negative impact on the growth rate of the Indian economy.

For anyone who understands or believes to understand the working of an economy, the latest GDP data release by the Modi government should come as a shock. The main takeaway from the release is that the horrendous exercise of demonetization did not have any negative impact on the growth rate of the Indian economy.

Did demonetization even happen? The sudden announcement, the subsequent scrambling for cash, the months-long chaos, the job losses, the massive drops in sales, the shutting down of small businesses and of course hundreds of deaths – was it all real or did we all sleep together and had a bad dream? The economists, stat-gurus, analysts and brokerage houses were all in sync predicting a decent drop in growth rate and pegging it around 6-6.5%.

Let us spend a valuable minute on understanding this GDP figure release and the ‘smart’ math behind it. To start with, the released GDP figures are a projection and not an observed fact. What this simply means is, the government ‘thinks’ (after a lot of calculations and projections) that the economy will grow by 7.1% in 2017 with respect to the year 2016. Around a year later from now, we will get to know how the economy actually performed and whether these projections were met or not. These are called ‘advance estimates’ – determining expectations about the economy and sadly these attract more attention than the real numbers which come out way later and are called the ‘revised estimates’. Due to this discrepancy in the attention these numbers receive, there is a smart game that the government can play and surely the current one did.

GDP growth rate is a relative metric, meaning the present figure relies on the previous one. For example, if the output is 106 units this year and was 100 units the previous year, the growth rate will be calculated as 6%, but the same output of 106 units will result in the growth rate of 7.1% if the previous year figure was 99 units rather than 100. If you look minutely at the figures released by the government, they have very subtlely decimated the figures of 2016 Q3 which in turn pushed the 2017 GDP growth projections way up to 7.1%. This served the BJP in two ways; a year ago when the 2016 GDP figures attracted attention, they were projected high; now the data that is attracting attention is for 2017, which as a result of decimating the old 2016 figures is sitting high at 7.1%. Simple calculation helps us realize that if the numbers for 2016 would not have been revised down, the 2017 GDP projections would have been around 6.4% instead of 7.1% and that would not have looked good on PM Modi’s resume for UP elections.

A thorough research is warranted to confirm whether such number playing has been done by earlier governments too, but this present instance of juggling confirms the reason for such rosy GDP figures in spite of the disaster, we know by the name of demonetization. Right from the time the numbers were released, things did not seem to add up. For instance, the IIP data shows that manufacturing output has not grown at all over the last year (0.2%) but the government data has projected 10% increase in the nominal output of the same. Another important distinction that needs to be made is, the GDP numbers rely majorly on the organized sector but the one hit the worst by demonetization is the unorganized sector. To measure the real impact of his actions, PM Modi will have to travel extensively throughout the nation and reach out to small vendors, stall operators, kiryana shop owners and rather than making them listen, he will have to hear their ‘Mann Ki Baat’.

In his election rally in UP, PM Modi proudly said, “Harvard se jyada dum hota hai hard work mein”. Yes we agree, this whole exercise of playing with and finding sweet spots in the GDP figures indeed would have taken some hard work, maybe not as hard as getting into Harvard but surely harder than writing attractive campaign slogans!

  • K SHESHU BABU

    The projection of data including budget estimates is becoming a sort of gimmick to placate people. They are far from realistic estimates and most of the time do not reflect the real situation on the ground