I/II. http://www.epw.in/journal/2016/24/editorials/lies-damn-lies-and-statistics.html
Lies, Damn Lies and Statistics Editorials Vol. 51, Issue No. 24, 11 Jun, 2016 The origin of this phrase is shrouded in mystery. American author Mark Twain popularised it and attributed it to British Prime Minister Benjamin Disraeli but the sentence, “There are three kinds of lies: lies, damn lies and statistics,” cannot be found in any of Disraeli’s works. In India too, what is put out by the government as figures of rates of growth of the country’s gross domestic product (GDP) has become rather mysterious and confusing. Prime Minister Narendra Modi and his cheerleaders have been shouting from the rooftops that this is the fastest-growing major economy in the world, something we are all supposed to be proud of. Truth be told, there are few who are euphoric about the current state of the Indian economy. What is worse is that analysts and commentators who have crunched the numbers put out by the Central Statistics Office (CSO) have raised doubts about their veracity. The rosy picture being sought to be portrayed by the government’s spin doctors may end up harming its own interests; reminiscent of how the “India Shining” campaign backfired on the Bharatiya Janata Party government led by Atal Behari Vajpayee in 2004. The latest estimates of the CSO indicate that India’s GDP in the financial year that ended on 31 March 2016 stood at 7.6% (against 7.2% in 2015–16) with an unexpected surge of 7.9% in the January–March 2016 quarter. Of the GDP growth of 7.6% in 2015–16, as much as 2.4 percentage points were accounted for under the head “discrepancies” against 0.1 percentage points in the previous year. In other words, if one excludes the discrepancies, the rates of growth of GDP would be 7.1% in 2014–15 and 5.2% in 2015–16—nothing to get particularly excited about. Even if one concedes that discrepancies are inevitable while compiling national accounts, especially when new and ostensibly more “accurate” systems of statistics are being sought to be put in place, there are a number of crucial questions that remain unanswered. ***Consider a few glaring anomalies in the GDP data. The manufacturing sector has grown by 8.1% in current prices in 2015–16. Yet the index of industrial production (IIP) for this period registered a rise of 2.4%. This has been a year when exports have declined continuously month after month. One of the noteworthy changes made by the CSO in its new methodology for calculating GDP relates to the use of data on company finances using the e-governance initiative database of the Ministry of Corporate Affairs (MCA 21) that has been used to supplement the information in the Annual Survey of Industries. This had radically altered the growth numbers for the manufacturing sector. For instance, the old series reported 1.1% growth in manufacturing in 2012–13 which gets pushed up to 6.2% using the new method. The comparable figures for 2013–14 have gone up from (-)0.7% to 5.3%. For the last two full years for which data has been compiled, while the IIP has reportedly grown by 2.8% in 2014–15 and 2.4% in 2015–16, the new national income data (at 2011–12 prices) places these figures at 5.5% and 9.5% respectively. The government has claimed that better coverage of manufacturing data of small and medium enterprises and superior estimates of value addition have been captured in the new methodology of calculating GDP but independent experts are far from convinced by such explanations of the huge rise in growth rates.*** [Emphasis added.] ***The CSO keeps updating and revising its data. It starts with putting out advanced estimates which become provisional estimates (PE) which, in turn, become revised estimates (RE) that are also changed more than once before the final figures are arrived at. If one compares apples with apples and not with oranges, the story is quite different from what the government would want us to believe. For instance, the latest PE of GDP growth in 2015–16 has been put at 7.6% over the first RE of 2014–15. If, however, we compare PE of 2015–16 with PE of 2014–15, the GDP growth figure comes down to a less impressive 6.6%. If we compare the PE of the real GDP growth figure for the fourth quarter of 2015–16 with the corresponding quarter’s PE in 2014–15, the proportion plummets from 7.9% to only 4.8%.*** [Emphasis added.] There are other misgivings about the CSO’s data. If the government is serious about allaying the apprehensions of many experts, it should appoint an independent committee of experts to examine the new methodology. It is just not analysts and observers who have expressed doubts about the numbers put out by the CSO. In the past, the governor of the Reserve Bank of India as well as the chief economic adviser in the Ministry of Finance have acknowledged that they have doubts about the veracity of the data. Window dressing may yield short-term political benefits. But the damage that fudged figures can cause to the credibility and the image of the government is potentially huge. The Economic & Political Weekly (EPW) has published a number of articles on this topic over the last several months. In fact, EPW has been in the forefront questioning the veracity of government data on the country’s national accounts. Way back in 1972, the finance minister of West Bengal Ashok Mitra had written in this publication a column titled “The New Obfuscators” in which he had compared the Brahmins of yesteryear to today’s economists. The former used to act as a buffer between the king and the masses to tell them that things are not all that bad. Particular government economists and statisticians have become modern-day spin doctors who, unlike the Brahmins of medieval times, want us to believe the economy is doing much better than it actually is, in order to please their political masters. But in playing along with the sycophants of the ruling regime, they end up fooling only the gullible few. II. http://indianexpress.com/article/opinion/columns/across-the-aisle-gross-domestic-product-or-puzzle-2847873/ Across the aisle: Gross domestic product or puzzle? The GDP growth number is an approximation of the underlying economic activity. Many economic decisions of the government and private investors are based on that number. Written by P Chidambaram | Published:June 12, 2016 12:00 am It was good that Dr Raghuram Rajan, Governor, RBI, has cleared some of the mist — and myth — surrounding the GDP numbers. He gave two simple examples: * First example: ‘Exports minus imports’ is a contributory factor to GDP. Exports declined in 2015-16, but imports declined even more. So, ‘exports minus imports’ in 2015-16 was greater than ‘exports minus imports’ in 2014-15. That means growth, contributing to the GDP number (in current prices)! * Second example: ‘Sales minus input costs’ is another contributory factor to GDP. Sales of all manufacturing firms declined by 9.02 per cent in 2015-16 over the previous year, but input costs declined more sharply (18.42 per cent), thanks to the steep fall in oil and commodity prices. Consequently, ‘sales minus input costs’ was greater in 2015-16 than in 2014-15. Result is growth! Output declines, growth rises! In both cases, there was no increase in output. Exporters exported less, factories produced less, firms had lower turnovers, there was little or no additional employment, and yet the sectoral ‘growth’ figures of the export sector and the manufacturing sector were positive, leading to the illusion that export and manufacturing sectors had ‘grown’ at a brisk pace. (Here, I assume that productivity remained constant.) Since the two sectors contributed significantly to the overall GDP number, the GDP number got a boost. The steep decline in oil and commodity prices is a new phenomenon and I think the CSO is not equipped to construct credible growth numbers in such a situation. The disconnect between the numbers and the reality on the ground is very evident. No amount of rationalisation can change the reality that is felt every day by the citizens — CPI inflation upwards of 5 per cent, no new visible investment and no additional jobs on offer. The average person is therefore stunned when he is told that the GDP had grown at 7.6 per cent. We get a more realistic picture of the economy if we look at the output numbers. Of the eight core industries, coal, refinery products, fertilisers, cement and electricity produced more in 2015-16 while crude oil, natural gas and steel produced less than in the previous year. The growth in the Index of Industrial Production of the eight core industries in 2015-16 was only 2.67 per cent. Nevertheless, the CSO reported high growth in the three sectors (that encompass the eight industries), namely, mining and quarrying (7.44 per cent), manufacturing (9.29) and electricity and gas (6.57)! Deficiencies in methodology Ever since the CSO moved to the new method of calculation, there has been growing scepticism. Analysts have pointed to several aspects of the new methodology that are suspect. One of the main deficiencies was the choice of deflators. Gross value additions (GVA) are measured in current prices but in order to make them comparable with measurements based on prices in the base year (2011-12), one must ‘deflate’ them with an appropriate deflator. In the cases of ‘trade, hotels, transport, communication etc’ and ‘financial, real estate and professional services’, the GVA at current prices was 6.6 per cent and 7.4 per cent respectively. The CSO applied negative deflators and reported a growth rate of 9.0 per cent and 10.3 per cent respectively. When the 12-month average of CPI inflation in 2015-16 was 4.9 per cent, it is difficult to believe that inflation in these two sectors was negative! There has been no convincing explanation why negative deflators were chosen for these two service sectors. The second deficiency was the use of the MCA21 database. It has been admitted that the database requires to be stabilised. We also know, anecdotally, that small and medium firms find it difficult to report the data about their firms periodically in the new format. Besides the MCA21 database has been shared only with the CSO, and no one has been able to verify the correctness of the data. The GDP growth number is an approximation of the underlying economic activity. Many economic decisions of the government and private investors are based on that number. My analysis leads to the conclusion that the GDP number is not ‘as accurate as possible’ and certainly does not inspire confidence. Some corrections are therefore in order. Corrections needed The first correction must be to identify industries and sectors where quantitative output had declined in 2015-16 over 2014-15 (productivity assumed as constant) and assume that growth in such industry/sector was zero. Examples would be exports, crude oil, natural gas and steel. The second correction would be to re-visit the deflators that were used. There is a huge divergence between WPI inflation and CPI inflation. It makes no sense to use negative deflators for sectors (especially services) where oil and commodity prices have no role to play and where consumer prices have, in fact, increased. The third correction is to reconstruct the GDP numbers using the old, conventional data and release them alongside the numbers using the MCA21 database until the MCA21 database is believed to have been stabilised. Finally, there is no harm in publishing, at least for a few years, GDP numbers using the old method and the new method. The CSO should complete the following table and restore credibility to the whole exercise: My guess is that the the number for each of the question mark-years would be between 5 and 5.5 per cent. -- Peace Is Doable -- You received this message because you are subscribed to the Google Groups "Green Youth Movement" group. 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