The original flaw may be technical, not political
years ago Arvind Subramanian, then India’s chief economic adviser, published a little-noticed passage in the finance ministry’s annual economic survey. The previous two years posed a “puzzle”, he wrote. India had reported miracle growth in despite miserable growth in investment, exports and credit. He looked for comparable examples elsewhere since 1991. He found none. No country had grown faster than 7% in such circumstances. None, in fact, had grown faster than 5%.
Or, indeed, hard to believe. Mr Subramanian’s official position meant he could not say that loudly then. But he is saying it now. In a paper published by Harvard University, where he is a visiting fellow, he argues that India’s growth figures have been greatly overstated. From the 2011-12 fiscal year to 2016-17, its economy officially expanded by about 7% a year, eventually outpacing China’s to become the fastest-growing big economy.
If India’s statistics are overstated, who or what is to blame? Political meddling is an inadequate answer, although this government, under Narendra Modi, has done plenty to arouse suspicion. In November statisticians revised down growth figures from last decade, taking the shine off the previous government’s record. In January they revised up growth in 2016-18, the two fiscal years most affected by Mr Modi’s daft and disruptive decision to remove high-denomination bank notes from circulation.
But Mr Subramanian sidesteps these two recent controversies, excluding the latest revisions from his analysis. Instead he concentrates his fire on a more fundamental technical change: a new method of calculating, from 2011-12 onwards, that was adopted in early 2015. Much of the preparation for this switch dated back to the previous government.
The new method may nonetheless suffer from other shortcomings. It may, for example, have failed to cope with the drop in oil prices in 2014. To illustrate: if an Indian company imports 10,000 rupees-worth of crude oil and adds 100 rupees of value to it, it might sell the refined product for 10,100 rupees. If the oil price subsequently halves, the company might try selling the same product for 5,110 rupees, boosting its margin.
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