Gauging growth right

IF GROWTH IS CONSUMPTION-LED, INFORMAL, OR PROPPED UP BY GOVT SPENDING, ITS DURABILITY IS IN QUESTION

- M MUNEER

IN 2015, INDIA changed its GDP base year (from 2004-05 to 201112) and made other methodology shifts, like using more corporate sector data via MCA-21, greater reliance on formal rather than informal sector output, measuring GDP at market prices (including indirect taxes) rather than factor costs, etc. These changes introduced several problems.

Corporate bias and weak informal sector representation: Since many households, small enterprises, informal workshops, etc. do not file audited accounts, many estimates rely on proxies. The informal sector, which employs more than 80% of the workforce, is hard to measure well; shifting away from industrial production-based surveys (Index of Industrial Production, Annual Survey of Industries) in favour of corporate databases may underweigh small firms.

Single deflation vs double deflation: India primarily uses a single deflator (broad price index) rather than separately adjusting input costs and output prices per sector. This matters especially when input costs rise steeply (oil, metals) but output price inflation lags; real growth may be overstated.

Weak correlation with real indicators: Arvind Subramanian's Harvard paper showed that post-2011, growth rates began diverging from basic metrics like electricity consumption, two-wheeler sales, passenger traffic, industrial output, etc. These indicators did not support the high growth rates claimed. Subramanian estimated that growth was overestimated by over 2.5 percentage points for FY12 to FY17-turning“7% average growth"into something nearer 4.5%.

Timeliness, classification and data gap issues: Delays in surveys, misclassifications, untraceable firms in the MCA (ministry of corporate affairs) database, and infrequent updates of key data (e.g. large sample households) introduce error and uncertainty.