'Faking GDP growth is very difficult': Arvind Panagariya explains why numbers are hard to manipulate

Arvind Panagariya, chairman of the 16th Finance Commission and former vice chairman of NITI Aayog, has rejected the Congress' charge that India's GDP numbers are a result of "statistical gymnastics". He said manipulating GDP growth over time would be extremely difficult because higher growth in one year automatically raises the base for the next year.

"This is a political charge is all I can say," Panagariya told India Today TV on Tuesday. "Because this is a technical matter how the methodology works, and if any person has complaints that the methodology is flawed in certain ways, certainly the MOSPI would welcome the suggestions. This is a process that's generally open, anybody can make their suggestions. And India's top statisticians generally are involved in working out the methodology."

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Panagariya, who served as NITI Aayog vice chairperson from January 2015 to August 2017, said there is a fundamental difference between manipulating the level of GDP and manipulating its growth rate. An inflated growth number, he said, would eventually make it harder to sustain the same pace in subsequent years.

"And by the way, one should also understand that faking GDP level maybe you can do, but faking growth is a very difficult task. Because today you fake and exaggerate your growth by two percentage points, tomorrow that 2% extra two percentage points goes into the base of calculating the growth rate for the following year, and that is going to...unless you are faking by 2% this year, 4% next year, 6% next year, you can't go on with that kind of process," he said.

The eminent economist also drew on his experience inside NITI Aayog to argue that the government did not control the GDP numbers.

"And in my experience at NITI Aayog from within this was never an issue with the government. The government will simply be told what the numbers are. And usually on the day that the MOSPI releases numbers, I will get to know a little bit earlier. The government would be told about the same time. So it is always MOSPI's call and then MOSPI holds the press conference to give out the numbers to the public at large," he said.

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Debate Over GDP Deflator

The 16th Finance Commission chairman also addressed criticism from former chief statisticians and others that a low GDP deflator could be artificially inflating real growth.

He said what critics are saying is that the nominal growth and real growth difference is small. This could be a fair point, he said, but added that in the end, the numbers are what they are. "So, if there are rather than making that charge, it'll be helpful if the government is told that these are the problems and fix those problems. But just because the numbers turn out that way, therefore, somehow something crazy is going on is not sufficient. It doesn't help anyway."

Panagariya also pointed to the wholesale price index, which can fluctuate sharply and has at times fallen into negative territory. For example, he said, the wholesale price index in India fluctuates dramatically. "There were times it has gone into negative territory. What is the fix for it? I do not know. The statisticians have to suggest that. But just saying that because the observed difference between the real GDP growth and the nominal growth happens to be low. therefore there is a problem that doesn't fly with me. I'm sorry," he said.

India's economy grew 7.8% in the April-June quarter, beating the Reserve Bank of India's 7% forecast and accelerating from 6.9% in the same quarter a year earlier. The Congress, however, has questioned the numbers. Party general secretary Jairam Ramesh called the 7.8% growth "not an economic spring" and said the figures present a "Greatly Distorted Picture" of the economy.