Reducing GDP discrepancies

India needs radical improvements in GDP estimation. Using GST data could help correct inflated real growth figures

- KARTIKEYA BATRA, JOSH FELMAN, & ARVIND SUBRAMANIAN

India's gross domestic product (GDP) estimates have long been the subject of controversy. For this reason, it is encouraging to see a recent news report that the government is planning to improve GDP measurement by using data from the goods and services tax (GST). If the plan is implemented, it would represent a great step forward, and redound to the credit of the leadership at the Ministry of Statistics and Planning Implementation (Mospi).

Consider why. Any statistical agency needs to decide whether it will measure GDP from the production side or from the expenditure side. In principle, the two measures should give the same result, since everything that is produced in an economy is sold (or stored as inventory, which is also counted as expenditure). But measuring production and spending in an economy as large as India's is difficult, and inevitably the two measures do not coincide.

At this point, the agency needs to make another choice. Some choose to average the two measures. But Mospi uses only one series—the production side—as its official GDP estimates, on the grounds that it is more reliable. But Mospi also produces expenditure-side estimates. And the discrepancies between these two series are worth examining for they reveal much about India's problems in estimating GDP.

The table shows the discrepancy between production- and expenditure-side growth estimates for all the years since the current methodology was introduced.