India’s former chief statistician and now Chair, Standing Committee on Statistics Pronab Sen says that the data on which India’s GDP is calculated is “a major concern”, and if not corrected soon, India’s GDP growth figures could become “unreliable”. He says he believes the Q1 GDP growth figure of 7.8% is an overestimation. He believes 6.5% is more accurate.
In an interview with Karan Thapar, he explains why he believes the recent Periodic Labour Force Survey finding that 58% of the workforce are self-employed is not an indication of increasing self-entrepreneurship (as claimed by SBI economists) but distress employment.
The following is a transcript of the video interview that was published by The Wire on November 21. It has been edited lightly for style, clarity and syntax.
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Karan Thapar: Hello and welcome to a special interview for The Wire. India pays a lot of attention to GDP and many people believe it accurately reflects the state of the economy. But does it? We’re going to answer that question by raising two further questions. First of all, how accurately does India calculate its GDP? And secondly, how meaningful is GDP for the vast majority of the country? And remember the vast majority are poor. To answer those questions I’m now joined by India’s former chief statistician and the country director of the International Growth Centre, Pronab Sen. Professor Sen, let’s start with a series of concerns about how India calculates GDP before I broaden the discussion.
Writing in Project Syndicate, Professor Ashoka Modi says that India calculates GDP on the basis of income from production rather than expenditure growth in quarter 1 has been overestimated. He says on the basis of income, it’s 7.8%, and on the basis of expenditure it’s 1.4%. And if you take an average of the two, it’s 4.5%. So, my first question is, does India calculate GDP in a way that exaggerates growth?
Pronab Sen: No. There are three ways of calculating GDP – from production, from incomes, and from expenditures. If you had perfect measurement, the three would give you exactly the same result. The problem is that different countries have data sources which enable them to use one or maybe two at most of these three approaches. In our case, we rely on the production approach because that’s where the data is the best. On income, we have practically no data because there is a very large informal workforce for whom getting income data is practically impossible, when you’re living on an hourly wage. So the income approach is out. The expenditure approach is also fairly difficult to do and there are large measurement errors there. So for us, given our data systems, given what we are able to capture, the production approach is the best.
So you disagree with professor Modi?
I disagree with him. Now, as far as the expenditure approach is concerned, the fact of the matter is that for all policy purposes, you need the data by the expenditure approach. It’s not good enough for you to know which industries are producing more or less or whatever. It’s very important for you to know what’s happening to savings, what’s happening to investments, what’s happening to consumption and so on. All our policies hinge around that. So the way we do the GDP here is we use the production approach as the benchmark, and then we try to estimate the expenditure approach with whatever data we have – much of which comes from the production approach, by the way. And there will always be a gap, simply because the data on the expenditure approach is limited.
That’s what’s called the discrepancy.
That’s what’s called the discrepancy. And it’s shown under the expenditure approach, so the system says look, we can’t give you the exact expenditure approach information, this is the best approximation we could do.
Professor Modi’s doubts arise from the fact that the discrepancy he says is very large and therefore he believes that the calculation itself is faulty. You’re now explaining that the way India calculates GDP is the best way for the country given our circumstances…
Given our data systems.
…and therefore you disagree with Professor Modi.
I do indeed.
Now, a second concern about the way we have been recently calculating GDP comes from Arvind Subramanian, the country’s former chief economic advisor and his colleague and co-writer Josh Felman. They say that because the wholesale price index is used as the GDP deflator – a figure which they call a derive number, not measured directly and which fluctuates widely – because of that, they say GDP growth, particularly in the last few quarters, has been exaggerated. They say the truth is and I’m quoting them, “The economy is actually decelerating rapidly but that’s not reflected in the GDP figures.” To what extent do you agree or disagree with this concern?
There is some justice to that. The wholesale price index is not really the appropriate price deflator. What we should be using is what is called the Producer Price Index, which is what the producers are getting. Because remember, the data that we are getting is coming from the production units. So what is of concern is how much are the producers getting for the act of production. We don’t get that. What we are getting is the Wholesale Price Index, which is usually the second point of sale. So what the Wholesale Price Index will contain, over and above what the producer gets, are transport and trade margins. And both of these can vary quite substantially. You know, any movement in the global oil prices and it immediately gets reflected. So, yes, I think there is some justice to it.
So, you would agree with Subramanian and Felman when they say that in the last few quarters – and I don’t know how many ‘few’ is – but they say in the last few quarters growth has been exaggerated?
Well, if we’re making that argument, then the corollary to that is that the WPI is systematically underestimating inflation. That would be the logical [conclusion], that’s how you are overestimating the GDP. If you’re underestimating…
Which means your nominal GDP is wrong.
So, clearly, Felman and Subramanian have in their minds an inflation figure which is much higher. This I suspect is coming from the observation that over the last seven months, the Wholesale Price Index has been in the negative territory. There’s been deflation.
And I think they’ve played around with CPI [Consumer Price Index].
Now when they look at CPI, it’s sub 6%, so it’s come down quite a lot. But the WPI has moved very, very widely. Earlier we had a situation where the WPI was running at about 13-14%, the CPI was about 7-8%, the CPI came down from 7-8% to 5% about and the WPI came down from 14% to minus 8%. So that’s what they’re really talking about.
Which is why the use of the WPI, which fluctuates widely to quote their language, is an unreliable way of deflating GDP or a misleading way.
No, it is, should we say an approximation. It is, I wouldn’t say entirely inappropriate. The question that really needs to be asked is whether we are measuring the WPI properly.
What they say in fact it’s a derived figure and is not measured directly and therefore they’re suggesting by the use of those two words that it can’t be accurately measured.
No, it isn’t actually a derived figure. The WPI is measured directly, there is a basket of goods and these prices are taken from the mandis and the wholesale markets.
And yet you still do believe there’s a measure of correctness in what they have concluded?
Yes, they have. As I said, because it’s not the appropriate price index.
So then let me ask you this. If there’s a measure of correctness, to use your phrase, in what Subramanian and Felman have concluded, that growth over the last few quarters has been exaggerated, it’s actually as they say decelerating rapidly that’s not reflected in the GDP outcome. Yet you disagree with Ashoka Modi. Could not the same logic apply to Ashoka Modi, that he too has spotted – maybe his explanation is wrong – but he too has spotted a higher level of GDP than should be the case?
Yes, but the arguments are a little different – substantially different. Now, you know, as I said, that Ashoka Modi’s case would have been stronger had he not made a statement in his piece saying that we should do what the Americans do, which is take an average of the two. That really is a cop-out. That assumes that the chances of error are equal in the two approaches. They have to be equal for that to work.
But the point that’s interesting is that you do agree that not just in the last quarter but over the last few quarters, for a variety of different reasons and they’re not the same in the case of Modi or Subramanian, Felman, but you do agree that over the last few quarters GDP has been overestimated.
I don’t know. That rests critically on whether the WPI is being seriously measured wrongly.
When you say you don’t know, are you saying you suspect but you can’t be certain?
I can’t be certain because if I say the WPI has been measured properly, then there is no argument. But if it hasn’t, then there is.
So you have grounds to be concerned and worried, but you aren’t certain.
I am not certain and you know here’s the thing. At what point do you start questioning the WPI? Is it when it goes into negative territories, saying that this does not fit in with… Or when it goes the other way? In which case, when the WPI was running at 14%, somebody would have come and made the statement that India’s GDP is being seriously underestimated. Now, the point is they’re perfectly willing to accept a 14% but not the negative.
I take your point entirely. The opposite argument could also have been made, a year or so ago, on the basis of the logic Subramanian and Felman present. I take your point. I’ve deliberately spent a lot of time on these two because both of these have been in the news, they’ve created controversy. And I think for the audience, you’ve clarified very much how you view it and maybe also shown why this may be grounds to have concern but there’s no certainty that flows.
Let me add to that. The ground for concern is we need to focus on the price indices. Are we doing it right? Now the fact of the matter is both the WPI and the CPI are today seriously flawed and therefore both of them need to be improved. Both of them need to be looked at.
A representative photo of vendors on a roadside in India. Credit: Pixabay
And if you don’t approve them, then the flaws inherent in the WPI – just to talk about that – will continue to cause concern about the GDP outcome we get.
This is correct.
Okay, now there is a third reason for concern about the way we calculate GDP and this is one, that to be honest you have mentioned in my interviews several times over the last few years – it’s how we calculate the unorganised sector, which is if you add agriculture 45% of GDP and 80 to 85% of employment, and we do it on the basis of a proxy derived from the organised sector.
That’s right.
And to my mind that raises two questions. First of all, are we calculating correctly? And secondly, if the unorganised sector is disproportionately affected by something like COVID-19, which did happen, but the proxy for calculating the unorganised sectors derived from the organised sector, then that proxy will end up substantially overestimating the unorganised sector. How much of a weakness are these two concerns?
This is a serious concern and… So, the way the system works is that the initial estimates particularly the quarterly and the first annual estimate we have no information on the unorganised sector. So we use the organised sector proxies, using relationships that have been derived from the past relationship. Then we are expected to get data from the unorganised sector surveys at which point the estimates are corrected. The problem that has cropped up is that it’s been several years since we’ve had an unorganised sector survey.
So they’re very unreliable?
Yeah. So we are way out of whack from reality because we don’t know what the reality is today.
In which case, at the moment we don’t have a clear or even a good idea of what is the situation in the unorganised sector.
This is right.
Therefore the 7.8% figure for quarter 1 may be quite substantially inaccurate because it’s based upon surveys that are several years old.
Yeah, in fact, my personal reading on this is that yes it is overestimated. Because what little one has seen from – sort of, what should I say – indirect data, the revival of the unorganised sector begins only sometime in late 2022. And perhaps even early this year. But the corporate sector has been doing extremely well. So the gap between corporate sector performance and the unorganised sector performance, I think grew very substantially post-COVID.
Which means the proxy derived from the corporate sector, the organised sector, is increasingly wrong.
Yes.
Which means then that not for the Ashoka Modi reason, not for the Subramanian and Felman reason, but for this third reason – which is one that you’ve discussed with me several times in the past – that 7.8% figure for GDP growth in quarter 1 is an overestimate?
Yes.
Do you have any sense of how much it’s an overestimate?
That’s difficult to say. You know, the data that I’m relying on is essentially what has been happening to banking sector lending patterns. So bank lending to MSMEs had pretty much gone to zero until early this year – February or March of this year. Then it starts picking up. And the informal sector, only part of the informal sector actually, is able to tap into that. So that was a very clear indication of the weakness among the unorganised sector units and the smaller units of the country, so the MSMEs. The point is we have no information on the alternatives, the informal sources of finance –moneylenders. Whether there was growth there or not, we don’t know. We only infer it when we look at data on unorganised sector production and how much they’ve been getting from the formal sector and then you can derive how much they must be getting from the moneylenders. So on the basis of the finance data, I think it’s pretty clear that the unorganised sector is not doing well. It’s just starting to come out of the woods.
Now, given that the unorganized sector is pretty close to 45% of the economy and 80 85% of…
Not, not actually. You have to take out about 18%, which is agriculture. So we come down to 27-28%.
But that’s still a very substantial number. In which case, what figure would you personally be happy with if 7.8% looks like an overestimate? Are we talking about a big drop to six or five?
No, we are probably talking about something around around 6, 6.5%, I’d say.
So, we perhaps overestimated by something like 1 or 1.3%? Which is actually quite a substantial overestimation. Then let me end this section of the interview by asking a broad general question. You are a former chief statistician. No one understands better, not just how GDP is calculated but how it should be for it to be accurate. Are you satisfied overall with the way we calculate GDP or do you have a couple of serious concerns?
No, I am as I said, there’s nothing wrong with the way we calculate the GDP.
It’s the data?
It’s the data. The question is, are we doing enough to update our data sources? And the answer to that is no, we haven’t done enough.
Particularly with reflection to WPI and CPI?
Well, not even that. I think the biggest problem is the unorganised sector data.
What is it that we should be doing that would give us better data that we’re not doing?
Many things. First of all, you know, price indices are very sensitive to what are the products that you have in the basket. That changes. Remember, our production patterns, our consumption patterns, all these change. And if you’re not keeping your basket of commodities up to date, you’re going to be measuring the wrong things.
You’re measuring things people aren’t consuming anymore or at least not in the same amount?
So that has to be updated on a regular basis, typically 5 years, every 5 years, we should be doing it. We are already 12 years down the line and it hasn’t been changed.
That’s a ridiculous lag! I mean India’s consumption pattern has changed very considerably in the last decade.
Yes, dramatically!
But these are all reasons why when people doubt the accuracy of GDP calculation you’re giving them good reason to say your doubts are substantial.
Yes, but it is not a problem, as I said, with the methodology. It is a problem with the data.
Absolutely, and I’m glad you made that point. The methodology is good, given the circumstances is probably the best we could have. But the data that methodology uses is in some instances hugely out of date – by 12 years! Therefore, whatever the reason, the conclusion remains the same. Because the data is poor, the calculation of GDP is not that accurate and therefore the concerns you have about the accuracy are huge major concerns.
Yes, they are concerns.
So I can say that these are huge major concerns that you have about the GDP outcome.
This is right and what makes matters worse is that the concerns become even greater with the passage of time.
In other words with every passing year…
unless the data sources are updated, the concerns will grow. And there will in fact come a point when I’ll be forced to say this is unreliable.
Are we getting close to that point?
We could. We are getting close to 15 years [since data sources have been updated].
So we’re getting very close to a point where you will say our GDP data is unreliable and the GDP outcome therefore is unreliable.
Therefore.
The figure that we boast about is unreliable. Okay, against that background – and I think that’s a very important background that we established for the audience – let me ask you the critical question that lies at the heart of this interview. How accurate or how misleading is GDP growth as a measure of the state of the economy? Before you answer, let me quote what Ashoka Modi wrote in The Hindu on October 30, “GDP is a flawed metric of national economic welfare. It hides inequalities and deflects attention from acute job scarcity, poor education, and health, unlivable cities, a broken down judicial system and environmental damage.” How close to correct is he?
No, he’s completely correct.
Completely?
Of course. I may quibble with his phrasing but in substance, he’s absolutely right.
So, from a layman’s point of view, when GDP growth or the GDP figure is held up by economists or by politicians as a sign that the country is doing extremely well, you’re saying, hang on, it doesn’t tell us very much it actually hides some very important things like unemployment, job scarcity, like poor education, and health, unlivable cities, and those are very important things to worry about.
Oh, indeed. But there are different measures for that. I mean, look supposing I started talking about the wealth of the country on the basis of educational indicators, you drive me out of the room, right? Saying that look, this is wrong. Why are you doing the opposite? The GDP is very… you know, when economists use the GDP, they’re very clear about what it is: it is the sum total of the income being generated in the country. How it is distributed, it doesn’t say. So, it’s like, if you, Karan, earn Rs 1,000, how you are splitting it between your family members we have no idea. But we do know you have Rs 1,000.
But, you’re saying a very important thing, Professor Sen. You’re saying if the GDP figure on its own is presented as proof that the state of the economy is great, it is not the most revealing and honest way of talking about the economy. It only presents a picture; there are other pictures that need to be woven in alongside before you get the truth.
Well, it depends on what you mean by the truth. So you have the GDP and think of the GDP as the entire cake. Then you have to ask the question: how is that cake being distributed between the people in this country?
Yes, but you could also ask another question.
What?
The cake on the table looks enticing and the icing looks delectable but there’s an awful lot that’s not on the table that you can’t see and how much is that losing out or missing out in telling the full story? Let’s come to that, because I think that is a major concern and let’s start with quarter one GDP cause it is the most recent figure we have, 7.8%.
Correct.
Now, it coincided with unemployment hovering around 8% and apparently since then unemployment has shot up to over 10%, which Mahesh Vyas tells me is the highest it’s been for 29 months.
That’s right.
Secondly, that 7.8% figure also coincided with the highest demand for NREGA for 10 years, in the months of June, July, August. Now, when you look just at the 7.8% figure on its own, it doesn’t reveal anything about high unemployment, it doesn’t reveal anything about increasing endeavour demand…
Which is why there is employment data, which is there in the public domain. So, I mean let’s take these figures, I mean there is already… what should I say? A battle raging between the CMIE data and the official data. So, you have the Periodic Labour Force Survey data in which the unemploy employment rate has dropped to 3%, the latest footprint, as against the 9% that Mahesh is talking about.
10.05
Or 10.05. So they’re moving in opposite directions. What’s going wrong? And this is where you need to understand the data.
Absolutely. But in that answer is something else that I’m teasing out which I think is important. If you simply judge the economy by which I mean the condition of the people of India cause that’s the important thing by the GDP figure, you’ll never find out that unemployment is pretty close to 10%, you’ll never find out that demand for NREGA in those three critical months had reached. GDP doesn’t reveal it and therefore GDP conveys a sense of satisfaction with growth. 7.8% is very good, but it doesn’t tell you how bad unemployment is and how great the demand for MGNREGA is, which is another sign of distress in the country.
It is. This is the point, that the GDP is a potential, right? How that potential is translated into well-being depends on how the GDP is distributed. So, I can have a 10% GDP growth but if accruing only to let’s say five families and the rest of the country isn’t getting anything out of it, then it’s of no earthly use?
Which is why if you only take out GDP, you don’t convey the true picture well or the full picture.
It’s not the full picture which is why when we look at statistics, you have to look at the whole series, that’s why the employment data is….
Absolutely. And my question arises from the fact that quite often politicians – or maybe all the time – politicians and often economists actually present the GDP figure on its own and claim from the high growth rate that it establishes that actually everything’s hunky dory and we’re sailing in high air. But we are not.
No, no, absolutely!
Let me take another illustration to check where the GDP reflects the economic reality, this time confronting the poor, which is the majority of our country. Shortly after the 7.8% quarter 1 figure was made public, we also discovered that 93% of the NREGA allocation for this entire fiscal year had been actually consumed in the first 6 months, which is a clear sign that demand for NREGA is extremely high.
Well, please remember in the last budget that we had, the finance minister very deliberately underprovided for MGNREGA. There was a 50% drop in the MGNREGA allocation, compared to the past year, right? And that was purely for optics that helped her to show a much lower fiscal deficit.
Representative image of a labourer at work in Rajasthan. Photo: Eric Parker/Flickr CC BY-NC 2.0
So in other words you’re saying that the reason why 93% got consumed in 6 months is not necessarily because demand is exceptionally high….
The provision wasn’t adequate.
That’s a good correction. But let me then give you the second check on that. Shortly, after the 7.8% figure was announced, the prime minister announced that in fact the free food grain scream for 80 crore will be extended not for a year or two but for five years. Now that clearly has to be a sign that there is a desperate need for free food for 800 million people and if that is true, then the 7.8% figure is simply not revealing that because it doesn’t suggest that there is that level of food hunger that you have to give free food to 800 million for 5 years.
Well, no. I don’t think the prime minister is giving free food because 800 million people are starving. I don’t think that’s the case at all.
It’s entirely political?
I think, what it is, is a preemptive political stroke, yes. I mean, simply taken away an important plank that the opposition could have used. He just removed it.
Okay, so neither of the two that I brought up in the second case of examples to question the fact that GDP reveals the true picture of the economy actually holds. What you’re saying to me is that the allocation for MGNREGA has been virtually used up in the first 6 months because it was halved
Half of what it should have been.
A full allocation compared to the year before would have been probably utilised only up to 50% and therefore there’d be no questions raised about demand for MGNREGA going up. And similarly, you’re saying, the fact that the prime minister announced free food gain for 800 million people for 5 years is not really a reflection of food hunger and therefore of distress. It’s actually political to seek votes.
Yeah, I suspect so. Now here… In both cases, these were political decisions. The first was the optics of the budget and the second was, you know, taking away a campaigning point from the opposition. But having said that, as I said, there is collaborative data, right? So if you are looking at the issue of whether MGNREGA is important or not, just look at the data of the number of people who have accessed MGNREGA, that has gone up. There’s no question about it. Second is look at the employment data, that has been coming out regularly. Unemployment is down but it is down essentially because people have gone into ‘self-employment’ mostly, and casual work. So we are talking about people who are desperate to do something not because it’s remunerative.
Let’s then come to that because I think that’s another very important way of seeing whether GDP reflects the real reality for the poor of this country which is the majority, by comparing what’s happening to GDP alongside what’s happening to the changing character of employment. Before I come to that, let me just clarify one thing for the audience.
Where you and I – or rather where you disagreed with my questions – was when I said to you that the use of the allocation for MGNREGA in 6 months which was intended for a year does not reflect distress it reflects the cutting of the allocation. Again where you questioned the question I raised was to do with the prime minister making grain available to 800 million for 5 years, that’s political, it’s not a reflection of distress. But where you agree with my question and I’m simply pointing that out to the audience- when I said that the 7.8% figure did not reveal the high unemployment which was 8% of the time has shot up now to over 10% and it didn’t reveal that even in that first quarter, something like 20 million families – which is 100 million people – were dependent NREGA.
Well, let’s take the employment [data]. What I did say, that is if you use the periodic labour force survey, unemployment actually was 6% and it came down to 3%, not 8% going up to 10%. So we have a fundamental disagreement between two data sources CMIE versus the government. That’s right and that is something that one could discuss but that would become a technical discussion.
And all I’ll say for the sake of the audience is in my conversations with Mahesh Vyas, who is the CEO of CMIE, he has always staunchly and rigorously and vigorously defended his outcome and he has good reasons for questioning the government’s figures.
Let’s come to the government’s figures, because I think it’s important to ask yourself, does the truth or the extent of the truth that the GDP reflects about the economy also coincide and corroborate with the changing character of employment? Now the recent periodic labour force survey shows that the percentage of people self-employed has increased from 52% in 2017-18 to 58% in 2022-23. This raises the first question: how good is the quality of self-employment? Do these people actually earn a decent, proper wage or are they pakorawallas?
No, even worse. See, by and large, a lot of self-employment is what’s called distress employment. We have nothing to do, we take whatever little we have, we sit on the footpath and we try to sell it. So which is one of the reasons, if you really look at our own historical data on employment, we’ve never had high unemployment. It has always hung around the 2.5-3% mark, where people who didn’t actually have jobs and a secure source of income, they were all self-employed. So self-employment in other countries is treated as essentially entrepreneurship being expressed, which is a good thing. Out here, it’s desperation. So self-employment going up is not a good thing. Now this is where the disagreement over the employment rate becomes important. So when the unemployment rate shoots up, whether we go by CMIE or by PLFS, there is no dispute that it has gone up to 8-10%. Okay, the question that should have been asked is why were these people sitting around without becoming self-employed? Because earlier days, they would have simply been on the street trying to peddle something or the other. It didn’t happen. They declared themselves as unemployed, why?
Because there is MGNREGA?
No, it wasn’t so much because it was MGNREGA. I think it was hope that this was transient and the jobs would come back.
And they didn’t want to be seen as unemployed.
They didn’t want to be seen to be employed. So they were just basically waiting till the jobs came back. What the data is suggesting if you read it properly is that that hope has gone and those people who were sitting out and reporting themselves as unemployed now have become self-employed.
But that self-employment is not really employment as you said, sitting on the street, peddling what they have. For us to consider them as employed when it is desperation is to misuse the word employed.
No. There’s a very technical definition for employed which is used and this is a definition which is given, this is an international definition which the ILO uses. In fact, not just uses insists that we follow it. So it’s an ILO definition, it’s a global definition, that definition is used in this context for everybody.
But I discover that even within that category of self-employed, which is now 58% of the workforce, one-third it appears are unpaid workers. Santosh Malhotra has calculated that the number of unpaid workers was 40 million in 2017-18 and it’s more than doubled to 95 million in 2022-23. So out of that category of 58% of the workforce who are self-employed, 95 million actually are unpaid. Now they’re still considered under the system as employed but it’s meaningless to say that someone’s employed and they’re not earning anything!
No, let me again try and explain how this could work. So, supposing I’m a street side vendor. I was sitting there from, let’s say 7 o’clock in the morning till 7 in the evening. Now, my brother who was working, has lost his job. He comes and sits with me and now I open the shop at 6 am and I close at 12 at night. So we are earning something more simply because it’s staying over but the fact of the matter is that this person isn’t really being paid. It’s a part of my collection. A lot of this kind of thing is happening.
Let me put it like this. I’m going back now deliberately to that GDP figure of 7.8% for quarter 1. When you look at that and you say to yourself, ‘Oh the economy is doing brilliantly we’re really growing at a pretty fast rate.’ You aren’t aware that hidden behind that figure is that 58% of your workforce is self-employed, many of whom as you said are sitting on the street peddling what little they have and of that 58%, 95 million actually not even being paid. They’re like the brother in your story. This is where the 7.8% figure if it’s presented to the country is proof that everything is doing well, and we’re sailing, actually, it misleads you. Because when you dig deeper or you go to other statistics, you suddenly discover that 95 million are unpaid.
Any data can be misused. All data is produced for a purpose. It measures something very specific. If you then start loading all kinds of value connotations to it, that’s not the problem with the data problem, that’s the problem with you.
Absolutely, and that’s really my purpose in this interview – to point out through these questions and your answers that when the GDP data on its own particularly, again that 7.8% figure, is touted as proof that we’re doing and everything is fine, the country is swimming, we’re improving.
The country is swimming, this is correct. The country as an entity.
But many people in that country, up to perhaps 58%.
Maybe more.
Maybe even more self-employed sitting on the pavement, selling what little wares they have…
The other category that PLFS tells you has gone up is casual labour, which is again a distress.
The other thing that’s gone up, is women who are unpaid workers, particularly in rural India. These are wives and sisters joining their husbands and brothers simply to lend a hand but not really earning anything. So the point I’m really making is that the more we tout the GDP growth figure – which politicians do – as proof that everything is fine, the more we actually deceive and mislead ourselves if you don’t add to that picture these other statistics about employment and distress.
Look Karan, who do you mislead? The point is a person who’s become unemployed or who’s had family members who have become unemployed, they are not misled. Who is being misled? It is you and me, who know neither about what’s happening to the country as a whole or to what is happening to the poor.
Let me put it like this a lot of people who depend upon information from newspapers or television channels where those papers and channels fail to contextualise the information and tell the full story, will be the ones who are misled. They will say, ‘Oh the country is growing at 7.8%, we’re going to be growing at 9% next year, everything is fine, there’s a new horizon opening for us, we will be a superpower.’ The truth is look at other statistics – of employment, of unpaid work, of hunger – and you suddenly discover another story and that is the point I’m trying to make, that the single-minded focus that we have developed in the last eight-nine years on GDP doesn’t tell the full story. It tells a story but it doesn’t tell the full story.
That is absolutely correct. It doesn’t tell the full story, but it does tell an important story in itself, okay? I don’t think we would feel any better if the GDP growth had been 3.8%. I mean that would be pure schadenfreude, which is saying that the poor are not doing well at all but the rich aren’t doing very well either, right? That’s all it says. Out here what you’re saying, in fact, the poor are doing badly but the rich are doing very well, thank you.
Actually, what I’m saying is this: we need as a country to become aware of the fact that the GDP figure doesn’t tell the full story.
This is correct.
And when you’re talking about the lives of the majority of your countrymen, it actually leaves out their story almost completely.
Yeah, you need different indicators for that. And those are indicators which tell you how the GDP is.
I’ll come to that in a moment’s time because I think that’s a very important next step but let me first put you a rebuttal of the points that you and I are making about the Periodic Labour force Survey figures. They come from economists in the State Bank of India, they say and I’m quoting them, “The increase in the self-employed is wrongly interpreted by labour economists and others as a signal of shrinking employment opportunities.” They add, “India’s labour market is undergoing a deep structural transformation with self entrepreneurship across all echelons and higher educational attainment emerging as key enablers.” Do you agree with that or disagree with that?
I completely disagree with it.
Completely?
Absolutely.
In fact, then let me ask you this. Can you describe the self-employed and remember, within that are 95 million who aren’t earning anything at all… can you describe either of those categories as self-entrepreneurship?
Oh there is, there are a lot of elements of that, right? Here is the question: the question is not whether India has a very large pool of entrepreneurs at all levels. There are, certainly. So we’ve had a large number of self-employed. The question is that the sudden increase that’s taken place in self-employment is… and remember this has happened in a period of two or two-three3 years. Is that a sign of sudden blossoming of entrepreneurship or is it distress?
What’s your answer?
My answer is distress. Entrepreneurship, budding entrepreneurship is a process. It takes time, it moves, it will move slowly.
So in other words what the SBI economists called a sign of self-entrepreneurship is actually better understood as a sign of distress. One other thing. The SBI is also that the guy who sits on the pavement selling the wares that he has is an entrepreneur.
In a sense, he is.
But it’s not entrepreneurship in the sense in which we understand the word large industrialist setting up companies and making profits.
No, no, or a small businessman setting up shop. The question that somebody should ask SBI is, would you lend that guy some money? If you think he’s a budding entrepreneur, the answer would be an emphatic no.
Okay, let’s then come to what are the statistics and indices that we should be paying attention to if we want to understand what is happening to the majority of our countrymen.
Yeah.
As I keep saying, the majority of our countrymen are poor. Praveen Chakravarti in an article that he wrote for the Indian Express – and I’ll add for the audience he’s a member of the Congress party – said that India – and he was talking both about the country and the opposition bloc – should actually cease to focus on GDP numbers and instead they should look at two things the total number of jobs created in the economy and what he called median income growth. He said these are better measures of what matters to the vast majority of the Indian people. Would you agree?
True. But the point is that we don’t have data on incomes at all. So you can’t concentrate on the median income growth.
We probably don’t have good data about the number of jobs created either.
We have some measure of it, yes, we do.
Good or bad?
Well, again you know, one would have to define the jobs. If you use the jobs in a generic sense of work, I don’t think what he’s saying is correct because that would pick up distress work as well. Where I would agree with him is if he said if he uses the term ‘jobs’ as saying regular paid employment. Not necessarily organised. It’s not necessarily organised but regular paid employment, a regular wage income.
Again, the 58% self-employed were not featured in this category at all cause you couldn’t pick it up. In other words, these may be good categories to look at because they better reflect the condition for the vast majority of our country but we simply don’t have the data. In other words, this is a very sad conclusion. What would reflect the truth about the vast majority of our country, we don’t have the data to find out.
Well, you know income is notoriously difficult to measure, all right? Simply because nobody wants to give that information, for a variety of reasons. Which is why we do collect data on consumption. Consumption data is easier to get and it is a proxy for income with the assumption that how much you spend depends on how much you earn. So using the consumption data is actually the only way we have. It’s a relatively direct proxy, we do know that there’s a relationship issue here which I can elaborate, if you like. But it gives you some sense as to how the distribution in the country is changing between the rich and the poor. The point is typically what happens because the rich have much higher savings consumption distribution is much more equal than income distribution, typically that’s the case. But it does give you a fairly good insight into what’s happening to the poor.
But this would also reflect something else. The increase in inequality that is taking place in the country, it does reflect that right? And if you look simply at what’s happening to car sales at one end and scooter sales at the other, scooters bought by the poor, their rate of growth is very low, cars bought by the rich, their rate of growth is exceeding year by year. That is one way of finding out what is happening to the majority of our country, a minority is doing exceptionally well, thank you very much. The majority is stalling at best or shrinking at worst.
Yes, but you know it’s a little sad when you have to depend on indicators of that kind. We should be getting regular household consumption expenditure data.
This is again where our data lets us down?
Yes.
We need to make an effort to get this data. Why aren’t we making that effort?
Well, we are making the effort. In fact, the data collection is in the field at the moment as we speak.
Okay, so maybe in a year’s time, we will have better data.
Hopefully.
Let me at this point, raise a concern raised by Raghuram Rajan earlier this month in November. He says we need to create 70 million jobs over the next 10 years and he says the rate of growth necessary for this is 8 or 8.5%. In fact, he adds, even at 7.5% growth, only 2/3 of the jobs problem will be solved. Would you agree that if employment is the main concern – and I imagine, for the majority of our country getting a job is probably the difference between life and death? So if employment is the main concern, not growing fast enough to create the jobs we need is the real problem.
It is and if you really read what Raghu is saying, he’s talking about seven million jobs being created in a year. So he’s really talking about educated employment. That’s only a part of the story. These are the jobs we need to generate to employ people who are getting educated.
It doesn’t take into account the jobs we need for everyone else.
Everyone else who is down there, who are in fact the poorest of the poor. The guys who are not finishing their class five.
This 7 million won’t cater for the 58% self-employed.
Correct. If you take those into account, there’s another 5 million of them waiting.
This leads Professor Sen to two last questions before I end the interview and they are questions that I will admit disturb me. If we’re not creating enough jobs not just to meet Raghuram Rajan’s target of 7 million a year, which is questionable whether we can achieve it, but to provide jobs for the 58% that are self-employed. If we’re not creating enough jobs, is there a danger that what we fondly call the demographic dividend could turn into a demographic predicament and perhaps, God forbid, at some point a demographic disaster?
Well, I don’t know whether it should be a demographic disaster. But what it certainly will be is an enormous opportunity lost. The demographic dividend is really about potential and if we miss it, future generations are going to hold us culpable.
But also if we miss it, we will soon become a country where we will be… much older and therefore unable to produce.
You will become a country where a very very large number of self-employed. We will be self-employed, we’ be sitting there.
So, India has a great future for pakorawalas.
And trinkets.
So, in other words, my phrase demographic predicament sounds increasingly correct.
Well, yes. But as I said, it is a problem, it will be a source of frustration but the most important thing is that it will be such a waste of an opportunity.
Raghuram Rajan. Photo: The Wire
Yes and there’s something else that follows from it. Will we become a developed country? The prime minister has taken to repeating as often as he can that we will be a developed country by 2047. Now by World Bank standards, developed countries I believe have per capita incomes of $13,200. If you want to peg yourself to the United Kingdom, a country’s economy we overtook a couple of months maybe at the most a year ago, we need to have a per capita income of $45,000. Our per capita income at the moment is $2,388. So, given the way things are progressing, will we be a developed country in 2047?
Well, if the definition is $13,200, it’s possible.
But if we want to be at the level of the United Kingdom and America-
No, no, no, no, not even close. But the real question then is what you had raised earlier. Is $13,200 – taking the GDP, dividing by the population… That’s what per capita income means. It doesn’t say anything about how it is distributed. So, if the distribution continues to get worse, then we may well reach $13,200 and still have masses of unemployed people and massive poverty.
You’re making two very important points. First of all, if the prime minister means we’ll be a developed country that we will be at the same per capita income level of the UK or the US or France or Germany, the answer is absolutely flatly no we won’t. But if he says that we can meet the much lower world back standard of $13,200 which is if I’ve got my mathematics correct, just about above a quarter of the UK level, that we can achieve. In other words, by 2047 we’ll be developed by World Bank standards but we’ll still be only a quarter of what the UK is… and by the way, the UK, by then, will have probably shot up to $50,000?
We don’t know.
The other danger is that even at the $13,200 per capita income level if we reach it in 2047, we could still have a situation where hundreds of millions could be self-employed and maybe another 100-odd million still in that dreadful predicament of self-employed but not earning anything. That means that as far as the majority of the country is concerned and I keep saying they’re poor, their future at the moment doesn’t look particularly rosy at all.
Well, no. We don’t know everything depends upon what we do in terms of the way we develop the economy. So, if we have the trend that we have seen over the last five-six years where the bulk of the growth has been concentrated in the organised sector of the economy…
Then this lot are forgotten?
This lot are forgotten and it is getting worse. The gap was increasing and we’ve talked about this before.
But you’re saying a very important thing. If we continue the way we have for the last five-six years, the future for the poor and the majority of the country will remain bleak and dark.
This is correct. So we really need to look at our development strategy.
That is a subject for another day, I promise I will come back to you and talk about that. But the picture I want to leave the audience with is this, and correct me if I’m wrong. Any single-minded focus on GDP as a way of telling the country and the world all’s well, we’re swimming fails to convey the reality faced by the majority of the country who are poor. Secondly, if we don’t change our development strategy but continue the way we have for the last five-six years, then the future for the majority who are poor remains bleak and even if we reach in 2047 the $13,200 per capita income levels and therefore technically qualified to be a developed country, we could still have 58% self-employed. Within which 100 million are actually not earning anything at all.
What a depressing end. Thank you very much indeed!
You’re welcome!
