Is the new GDP series a travesty of statistics?

Relevant for GS Paper 3:-

• Last week, the NITI Aayog released the back series of gross domestic product (GDP) data on base 2011-12 for the years 2004-05 to 2011-12. The series was eagerly awaited by researchers as well as policymakers ever since the base was revised in January 2015. This release follows an unofficial release of the report of the committee on real sector statistics constituted by the National Statistical Commission (NSC). The NSC is the statutory body authorized to approve these changes and the committee’s report of July 2018 had presented one of these suggested back series.
• The NSC series, with all the details provided, suggested that the overall growth rate was higher with the new series based on 2011-12 than the 2004-05 series. This was expected since a similar upward revision was seen when the 2011-12 series was launched in 2015.
• But now, the NITI Aayog has come into the picture and it has presented a series which suggests that the GDP growth rate between 2004-05 and 2011-12 was actually lower on the 2011-12 base than the 2004-05 base. One implication of the revisions in back series is that the growth rate of the economy under the present government now appears to be better than that between 2004-05 and 2011-12. There is no way of inferring which of these estimates is correct without clear information on methodology. But the least that is expected is that the data is consistent with other real sector statistics. That is, it has to pass the smell test.
• Unfortunately, it fails the test. There are a number of data sources on other indicators of the economy—such as credit growth, exports, investment, consumer durable sales, production assets sales and so on—which show that growth between 2004-05 and 2011-12 could not have been lower compared to the last four years if both the estimates are based on same set of data and methodology.
• Clearly, the new estimates of back series raise more questions than answers. The press note of the government suggests that the new estimates are based on a hybrid methodology using splicing method and use of new data. But the NSC estimates also created a series based on splicing, and the report also noted that the results from two other alternative methods of production shift approach and use of base data yield similar results. Clearly, the huge divergence between these two estimates, both arrived by the same data base, cannot be justified.
• The procedure for arriving at a back series after every revision is a complicated exercise. But this is not the first time that the Central Statistical Office (CSO) is revising the base. Nor is it using a new database for the first time. It has happened in the past but it hasn’t led to a hugely divergent series being produced using same method. It is not rocket science. But it also defies logic if one looks at the break-up of the growth rate by sectors. The clear example of this is agriculture, where no new database has been used and all the data on prices, production and inputs is based on same data set. How is that the growth rate of agriculture varies so much between the two series? Similarly, the availability of the new data set of MCA-21 is stable only after 2010-11, something that has repeatedly been claimed by the ministry of statistics and therefore not of much use for services and manufacturing, but there is large downward shift in the growth rates in services. What is also surprising is that much of the downward shift appears in the constant price series but is almost negligible in the nominal price series. Did the government create a new series of price indices? Further, there is no justification for releasing the back series only for the years between 2004-05 and 2011-12 and not releasing for others. Presumably, the same method would apply for earlier years and it could easily have been computed. Does the series also lower the growth of National Democratic Alliance (NDA) years between 1998 and 2004?
• But really, the issue is not about growth rates, except for the optics of media and for rating agencies. The farmers of the country who marched last week on the streets —the fourth time this year—do not look at the growth rates to realise the worsening of rural distress. The fact that real wages have been declining in the last four years of this government when growth has been higher compared to more than 4% real rate of growth of wages during 2004-05 to 2011-12 does not need certification from the NITI Aayog.
• But the real issue is also the collapse of the statistical system which was built from scratch by the founding fathers of the country. It had acquired a credibility and reputation unmatched by even the developed country statistical system. It first suffered credibility shocks when the new series was released and was almost unanimously rejected by the academic community as well as institutional users such as the International Monetary Fund and the Reserve Bank of India. Even the ministry of finance questioned these data.
• While the GDP series is a clear example of doubts being raised on the statistical system by the government, it is not the only one. A similar attempt has been made to discredit existing data sources on employment such as the employment-unemployment surveys of the National Sample Survey Office (NSSO). While it changed the old surveys with new ones —thus sacrificing comparability—it discontinued the other major source of annual labour surveys of the Labour Bureau. The government has also given up any attempt to measure poverty after raising questions on the earlier methodology. The Rangarajan committee report on measurement of poverty is yet to be accepted after four-and-a-half years of submission of the report to this government.
• The need for accurate statistical data and an unbiased and independent statistical system is not only important for academic research but also vitally crucial for policy making. This government does not consult any statistical evidence or expert advice to make policies. Demonetisation was a good example of it but even the pretence of having some regard to facts and data has now been given up.
• Facts and data are not just academic matters and policy instruments, they are vital for the survival for a democracy. For it is these facts and data which make our governments accountable. The attack on the independence and credibility of the statistical system is also an attack on the very foundation of democracy.