The new GDP back series data released last week by the National Statistical Commission were not accepted by the current government saying that the figures were not official but experimental, while the former called it work-in-progress. The Congress, on the other hand, did not fail to seize the opportunity to show how the economy had fared better under UPA than under NDA.
Bloomberg’s analysis of the new series GDP data released on August 17, 2018, showed that growth was higher over 2003-04 to 2011-12 and lower before that from 1994-95. This has resulted in a renewed battle between the now government and the UPA, with the latter claiming that the economy was mismanaged every time the NDA was in power and soared high under the UPA regime.
The earlier series was calculated based on the base year of 2004-05, and the new series has been calculated on the base year of 2011-12.
However, the story that the numbers tell is not so simple.
While the difference between the GDP values calculated using two different base years is not very significant, we tend to overlook many parameters overshadowed by the GDP when it comes to the actual economic well-being of a country.
Consider the 2008-9 period. The Indian economy witnessed double-digit growth in 2007-08 (as per the new series), right before the global financial crisis. The current account and capital account deficits were more steady compared to the 2010-11 period. This period also witnessed high global growth. However, inflation was extremely high at above 9%.
In 2010-11, GDP growth was 10.78% (based on new series data). However, if one considers macroeconomic variables in the same year, it can be seen that it was also a period of high inflation. This growth can also be attributed to the fiscal and monetary stimulus following the 2008-09 global financial crisis, which was not withdrawn for long, eventually resulting in wider deficits and higher inflation.
Further, growth rates under the current BJP regime were adversely affected due to the introduction of disruptive reforms such as demonetization and GST, which are expected to show positive economic effects with a lag, like any other reform.
Then and Now: So what’s the difference?
A back-dated GDP series allows economists to better gauge the potential growth rate of an economy. Earlier in August, the IMF estimated India’s potential growth rate at 7.3% for 2017-18 and expects the rate to be ~7.75% for 2018-19. Based on the new data, Bank of America-Merrill Lynch estimates India’s potential growth rate to be ~8% for 2018-19.
Further, a comparison of the growth rates in the old series with 2004-05 as the base year and the new one with 2011-12 as the base year carried out by Bloomberg revealed minimal differences. The GDP can be calculated using either expenditure numbers or production numbers, and a reconciliation between both these methods is the discrepancy variable that can be seen in the comparison.
While considering economic growth, especially after the 2008 crisis, one must note that several favorable policies were implemented. India’s economy has also benefited from global growth and other macroeconomic factors. Recent initiatives such as GST and demonetization have had a bearing on the GDP numbers, so have fiscal and monetary stimuli in the past.
Hence, the GDP figure or growth rate alone is not the only and tell-all sign of a nation’s economic health. How it has been calculated and the global and national economic scenario prevailing at the time must also be considered. Further, measures such as gender parity, climate change, water and sanitation, and human development index should be included while quantifying a nation’s holistic development.