Business Today

The GDP blooper

The controversy over the government's GDP growth estimates has raised many questions about the reliability of India's macroeconomic data.

Print Edition: October 3, 2010

What happened: The GDP growth figure of 8.8 per cent for the April to June quarter released by the government showed a big divergence between the demand side (GDP at market prices) and supply side (GDP at factor cost), which is unusual. Against the actual growth of 10.02 per cent, the Central Statistical Organisation, or CSO, put the growth at 3.65 per cent. But it revised the figures within a day. "It's a big embarrassment for us. It's a wake-up call to avoid future recurrences," admits T.C.A. Anant, Chief Statistician of India.

Why it happened: The quarterly GDP growth estimates are derived by converting output in prices to measurable quantities by using different price deflators (or inflation indices such as WPI and CPI). This gives an accurate indication that the higher output is necessarily due to higher production and not because of price fluctuations in the economy.

  • CSO pegs GDP at factor cost at 8.8% for the April-June quarter
  • Astonishingly, the GDP at market price trails way behind at 3.65 per cent
  • CSO forced to revise estimates for GDP at market price to just over 10 per cent
  • Chief Statistician admits to BT it's a "big embarrassment"
Says Anant: "The wrong usage of deflators resulted in the sharp drop in the estimates for GDP at market prices." Usually, before releasing the figures, the National Accounts Division reconciles demand and supply data to find out if there are any major anomalies, but this procedure wasn't followed. "We get less than 15 days to compile everything and do error-checking. I am working on streamlining the process so that there will be enough time for crosschecking," says Anant.

What are the implications: A large amount of data released by the CSO in the form of GDP, IIP, WPI and CPI are used by various bodies ranging from the Reserve Bank of India to the Planning Commission for key policy decisions. "There is a downside to putting out quarterly estimates in such short time. It comes with a risk of possible error," Anant says, but adds that the government's quick response this time demonstrates that the "basic systems" are in place. We'll keep our fingers crossed.

-Manu Kaushik

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