“This blind trust in a private agency (CMIE) and blind distrust in a government institution that has served India (CSO) appears unwarranted for a neutral academic,” the note said. Subramanian has used some data from the Centre for Monitoring Indian Economy, which is a private business information company that provides data on capital, investments, labour market, and the financial sector.
“…It is evident that he trusts CMIE but distrusts CSO… This distrust is not because of methodological reasons. It appears more towards the institution,” the EAC-PM wrote.
Bibek Debroy, the chairman of the EAC, Rathin Roy, a part-time member, and economists Surjit Bhalla, Charan Singh, Arvind Virmani have authored the note.
Subramanian analysed 17 high frequency indicators across 70 countries to conclude that the lower growth in these indicators in 2011, compared to the pre-2011 period suggest an over-estimation in real GDP growth. On this, the EAC said, “A critique of official GDP estimates must specifically critique coverage or methodology, the author does neither.”
On the use of the Index of Industrial Production (IIP) for analysis, the EAC said the volume-based indicator captures production, and not value addition, which goes into the estimation of the GDP. Subramanian found that the IIP for manufacturing was not strongly correlated to GDP growth in the post-2011 period, and that lower IIP points to lower real GDP growth.
The EAC pointed out that the method of calculating IIP was revised in 2012, and this was not taken into account by the former CEA.
PM’s economic advisors also made a counter point that in the pre-2011 period, many high frequency indicators such as credit growth “on steroids” due to “exuberant lending by banks”, and the real economy didn’t grow as much.
Underlining another difference in the two periods, the EAC said domestic consumption and public investment have been the main contributors to growth in India in the last decade, as opposed to exports and private investment (and credit) in the period prior to it.
It said India’s estimation of national income accounts has improved after the 2015 revision (2011-12 series), due to availability of better data.
“If everything was perfect before 2011, why did global experts encourage India to adopt a more robust GDP calculation methodology,” the note questioned.
While Subramanian did not use tax data in his analysis, the EAC said this “appears to be a convenient argument meant to avoid inconvenient conclusions based on hard facts”.