Did India’s GDP really grow at 8.2%?
or are the numbers wrong?
8.2% GDP growth. That’s the number on everyone’s mouth, a return to the top for India, a vindication of the government’s economic policy, we got in on it too.
But how accurate are these numbers?
An article by Ravindra H Dholakia, a member of the RBI’s Monetary Policy Committee and other researchers suggest that the numbers for the manufacturing sector are inflated.
So how did they come to this conclusion? Did someone, somewhere make a typo or is it something else? We’ll get to that but first, some general knowledge:
The GDP of India is calculated by the Central Statistics Office. The CSO works with central and state departments to collect a ton of data points and compile indexes. In 2015, the office introduced a new series of National Accounts Statistics with several updates and changes.
The new series dramatically changed the GDP data on the manufacturing sector; its share in the GDP grew by 2% and the annual growth rates are higher as well.
The problem, the article contends, lies in the change made to how the manufacturing sector’s output is calculated.
Of factories & firms
The CSO used to calculate manufacturing output using the Annual Survey of Industries(ASI). Think of the ASI as a mega survey of large firms; how many employees they have, how much material they bought, how many units of goods they made, sales, inventories etc. This data compiled helps the government understand the health of the manufacturing sector and the rate of growth (or lack of it).
In the new series, they switched to using data from the Ministry of Corporate Affairs (MCA) to account for value addition in manufacturing. The explanation was that the ASI does not properly account for the value add.
It was stated that the ASI, by design, only measure outputs from the factory and does not account for the value from the other locations such the HQ, sales centers, R&D labs etc.
But the MCA data, filed by corporates would account for all the output and value add.
This is where the article by Dholakia and co. strike. They point out that the MCA database has several shortcomings and is possibly of bad quality.
Even worse, they note that the ASI might have been accounting for value add after all
They note that the field manual for ASI inspectors accounts for enterprise level value add. Here’s a snippet from the article-
“The ASI, in fact, captures employment, investment, and value added of activities outside of the factory, such as the head office, R&D, sales and services, and so on that are part of the enterprise in most of the cases …
… Information gathered from the field supports our contention: the ASI, in fact, includes value addition in activities outside of factories such as company headquarters and sales force.”
What does this mean for us?
Simply put? The GDP numbers are probably off by some points.
Is this really bad? Nah.
It doesn’t change the overall growth story, but it does mean that data on the manufacturing sector is suspect. The article notes that there might be other reasons for the higher share and growth in manufacturing, but the key justifications against the ASI don’t make sense.
I do would what I always do, take government figures with some salt.
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