Business / PM’s panel rejects former CEA’s paper on GDP growth

The Hindu : Jun 20, 2019, 10:01 AM

The Prime Minister’s Economic Advisory Council (PMEAC) has released a detailed note enumerating its objections to former Chief Economic Adviser Arvind Subramanian’s paper on India’s GDP growth.

The note said that Mr. Subramanian’s paper “lacks rigour” and would not stand up to academic scrutiny.

Lower GDP

The paper, released in Harvard University, postulated that the GDP growth between 2011-17 was significantly lower than the 7% shown by the official figures.

“Having closely read the paper and taking into account all information available until June 19, 2019, the primary contributors of this note reject the author’s methodology, arguments and conclusions in the said paper,” the note by the PMEAC said. “A critique of official GDP estimates must specifically critique coverage or methodology, the author does neither.”

“Given the fact that his paper lacks rigour in terms of specific data sources and description, alternative hypothesis, rationale of equation specifications, use of dummies, and robustness-check diagnostics of estimated equations, and choice of countries in the sample and a specific list, it would not stand the scrutiny of academic or policy research standards,” the note added.

The Council, however, said this did not mean that the paper should not be taken seriously, but that “to believe it as gospel truth is equally problematic.”

In a detailed rejoinder, it said the 17 indicators “cherry-picked” by the former CEA were sourced from the Centre for Monitoring Indian Economy (CMIE), which was not in itself a primary source of information.

“Further, a cursory look at the indicators suggests a strong link with industry indicators (a sector that contributes an average of 22% to India’s GDP), while the representation of services (60% of GDP) and agriculture (18% of GDP) is as good as missing,” the PMEAC said.

“It is difficult to believe that indicators in the services sector would not correlate with Indian GDP.”

The note pointed out that while Mr. Subramanian had stated in his paper that he was not including tax collection data in his analysis because their relationship to GDP was unstable, the fact is that tax collections are hard data that are not based on surveys and should not have been ignored.

“Unlike many indicators, tax data is not collected through surveys or by agencies through arcane techniques. These are hard numbers and should be an important indicator of growth,” the note said. “Further, there have been no major changes in tax laws until the end period in the author’s analysis (March 31, 2017). GST was introduced on July 1, 2017.”

“The author’s logic of not using tax data appears to be a convenient argument meant to avoid inconvenient conclusions based on hard facts,” it added.