New Delhi: In two parallel interviews, presented as one package, to discuss the IMF’s decision to give India’s national accounts statistics, which include key figures such as GDP and GVA, a 'C' grade, which is the second lowest grade, Arun Kumar, a former professor of Economics at Jawaharlal Nehru University, and Pronab Sen, India’s former chief statistician, have said that India’s GDP is less than reliable.

They said that the problem arises from the way India estimates the unorganised sector which, including agriculture, accounts for almost 45% of GDP. To do so, India uses the organised sector as a proxy to estimate the performance of the unorganised sector. But if the two sectors are moving in opposite directions, as happened after demonetisation, GST and the pandemic, you could end up either overestimating or underestimating the unorganised sector.

'Almost 50% wrong'

Arun Kumar said that he believes India’s actual GDP is probably 48% of what the official figure claims it to be. He also finds it very difficult to accept the 8.2% GDP growth figure released yesterday for Quarter 2.

"The economy is almost 50% wrong – when the government says it's $3.8 trillion, my estimate is it is probably still $2.5 trillion because we are overestimating the unorganised sector, which is actually declining. This is building up over a period of time," Kumar said.

Consumer prices

Pronab Sen said that at the moment the GDP figure we regularly produce is "no better and no worse than what it was 10 years ago."

Sen noted that for the quarterly GDP estimates, "we make a lot of assumptions" and "we simply don't have quarterly data for most things."

"Now when you don't have the data, you have to go by assumptions. You look at past relationships, past trends, and try to do the best you can. But until we get to a situation where most of the data that we need for quarterly estimation are actually collected physically, this problem is not going to get solved," he added, indicating that even best efforts at this stage will not be adequate in resolving the problem.

But Sen admitted that we could be overestimating the unorganised sector, even though the solutions are not obvious. Sen notes that the bases are also often outdated and do not account for changes in consumer markets. "We are measuring a lot of products whose prices are probably on the way down because those products are probably being phased down," he said.

Sen noted that we had committed to revising price indices every five years – "which we haven't done."

The prices of agricultural goods have been falling but the growth rate of GDP in agriculture is 3.5% or 3.6%, Sen said.

Sen said he has reservations about the 8.2% growth figure for GDP in Quarter 2 which was officially released yesterday. He suggested that if nominal GDP is 8.7% it is hard to accept that inflation is only 0.5%, though he agrees inflation is low.

"Are we doing something wrong in the compilation of the GDP? We may be. In the quarterly GDP assessments we make a lot of assumptions," he said.

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