Arvind Subramanian was the top economic adviser to the Indian government. Now he says the country’s growth may have been overstated.
A change in the method used to calculate India’s GDP led to “a significant overestimation of growth,” Subramanian writes in a research paper published by Harvard’s Center for International Development.
In the paper, Subramanian estimates that India’s economy grew at an average of 4.5% a year between March 2011 and March 2017 — far weaker than the 7% average rate reported by the government over that period.
Subramanian tracked 17 different economic indicators that are “strongly correlated” with growth, including electricity consumption, industrial production and commercial vehicle sales.
He found those indicators diverged sharply from the government’s growth numbers after 2011, the first year of data affected by the change in methodology.
The paper also found that India’s reported GDP growth was far higher than other countries with similar economic characteristics.
“The results in the paper suggest that the heady narrative of a guns-blazing India must cede to a more realistic one of an economy growing solidly but not spectacularly,” Subramanian wrote.
A former economist at the International Monetary Fund, he served as the government’s chief economic adviser for most of Prime Minister Narendra Modi’s first term.
Modi won a second term as India’s leader in this year’s national election.
Subramanian, who advised the government from October 2014 to June 2018, sought to explain his role on Tuesday.
“Throughout my tenure, my team and I grappled with conflicting economic data. We raised these doubts frequently within government,” he wrote in an op-ed published by The Indian Express.
“But the time and space afforded by being outside government were necessary to undertake months of very detailed research … to generate robust evidence,” he added.
The new findings echo concerns expressed by some economists and analysts who have repeatedly said India’s growth numbers are “inconsistent” with reality.
The change in GDP methodology was announced in 2015, but applied retroactively to data from as far back as 2011.
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Subramanian admitted in 2015 that he was “puzzled” by the revised numbers, telling a local newspaper that the estimates may not necessarily be wrong but “bear further scrutiny.”
The government has repeatedly defended the changes to GDP calculation.
“The GDP estimates … are based on accepted procedures, methodologies and available data and objectively measure the contribution of various sectors in the economy,” it said in a statement Tuesday.
As things stand, even the official numbers don’t paint a very flattering picture.
India’s economic growth slumped to 5.8% in the quarter ended March, according to official data. That’s the slowest rate in two years, and one that cost India the title of world’s fastest growing major economy.