Upward GDP revisions for note ban, GST years surprising, says ex-CEA -Asit Ranjan Mishra
* GDP estimates are based on accepted methodologies, says government
* Subramanian made the claims in his latest working paper published on the Harvard University website
New Delhi: India’s statistics ministry likely underestimated the impact of demonetization and the rollout of the goods and services tax (GST) on economic activity, leading to an overestimation of gross domestic product (GDP) figures, the finance ministry’s former chief economic adviser, Arvind Subramanian, has said.
On 31 January, the statistics ministry had raised its growth estimates for 2016-17, the year of demonetization, to 8.2% from 7.1%, thus making it the year with the fastest economic growth under the previous government. Similarly, data for 2017-18 during which GST was implemented was revised upwards to 7.2% from 6.6% estimated earlier.
“Earlier this year, there were also substantial upward revisions to estimates for 2016-17 and 2017-18, which seemed surprising given that they were years when the short-term impact of two major policy actions —demonetization and GST—would have been most severe," Subramanian wrote in his latest working paper published on the Harvard University website.
In his book Of Counsel: The Challenges of the Modi-Jaitley Economy released last year, Subramanian had said demonetization dealt a “massive, draconian, monetary shock" and hinted he was not consulted on the matter.
“Real GVA (gross value added) growth for the informal sector are based on and proxied by the IIP (index of industrial production), which is mostly composed of formal sector firms. The informal sector accounts for 30% of manufacturing GVA and hence about 5% of overall GVA. This proxy might be reasonable in normal times. But it likely overestimated growth during a period when major policy actions—demonetization and GST—disproportionately impacted the informal sector," Subramanian wrote in his working paper.
“For example, in 2017 and 2018, IIP manufacturing growth registered positive growth of 3.3% and 5.3%, respectively. But most likely, the informal sector registered negative growth in these years because of demonetization and GST," he added.
Subramanian said the back-series GDP data produced in December 2018 revised downwards previous estimates of GDP growth for the period of the UPA government. “Today, these changes are being seen as political because of other controversies that have arisen that, in principle, must be distinguished from the methodological change," he added.
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