Eyeballs’ are prized as curren cy in media, including in Wes- tern media where also geopo- litical critique is a mainstay Particularly for anti-India. commentary This fascination isn’t simply due to India’s rise and complex cultural, political and economic lands- cape. It’s also about marketability Cont roversy sells. When it’s wrapped in sub- continental exoticism, it sells better.
This holds especially true when eco- nomists, considered high priests of the modern liberal order, weigh in. Their critiques often echo loudly in in- tellectual circles, but peak resonance is achieved when the economist is an NRI or PIO with affiliations with a pre- stigious Western institution. Lo and behold, we have peak credibility and peak ‘click baitability.
Yet, among these critics exists anot her tribe the perennial pessimist, ever ready to cast shadows on any sem blance of positive change in India. The scepticism elevates to almost mythicalproportions when such critics voice their analyses, often dismissing positi ve growth statistics as mere branding and beautification’ orchestrated by Gol. But, paradoxically when thenum bers are low, those very same statistics become gospel truths, sacrosanct and irrefutable. The irony is palpable, and one can’t help but marvel at the intel- lectual gymnastics required to switch from deep scepticism to staunch con viction at the drop of a hat.
Take Ashoka Mody’s article for Project Syndicate, India’s Fake Growth Story, published last week just before the New Delhi G20 Summit. Mody rai ses two main issues with India’s latest growth numbers released recently by the National Statistics Office (NSO):
â–ºDiscrepancies’ in national accoun- ting raise questions about validity of these statistics. While income from production reportedly grew at a 7.8% rate, expenditure only increased by1.4%, according to NSO. Hence, for Mody NSO ‘assumes that expendituremust be identical to income earned and it is covering up the reality of ana emicexpenditure at a time when many Indians are hurting, and when foreig ners are showing only a limited appeti- te for Indian goods”. Growth rate is masking chronic job
Let’s first see what these discrepan cies are. The balancing item between the production-side estimate of value added (and taxes) and expenditure-si- de estimate is shown as ‘discrepanci es. Chief economic adviser V Anantha Nageswaran has already refuted the first point, clarifying how income and expenditure discrepancies are re conciled over time.
A 2.8% positive discrepancy in Q1 2023-24 means that 97.2% of income is explained by expenditure, not that the remaining 2.8% is fabricated. Negati ve discrepancies in prior quarters ba- lance this out. From QUFY12 to QIFY24. the annual growth rate of GDP is consistent at 5.3% for both income and ex- penditure approaches. Given that past discrepancies have ranged between 6.4% and -4.8%, the latest figures are well within this range, negating claims of inflated GDP.
Surprising Mody in his piece fai-led to mention the last 8 quarters sho-wed negative discrepancies and thelarger base. There were negative dis- crepancies in Q1 of 2021-22 and 2022-23. As the discrepancy was negative in Q1 of last year and positive this year, the number was larger for last year butsmall for this year: Similarly, the nume rator is low due to positive discrepancy This explains the puzzling contrast bet ween annual 7.8% growth rate in pro- duction in April-June and the mere 14% rise in expenditure’. Again, men- tioning this wouldn’t have brought credibility to his ‘unbiased argument.
So, what is the reason behind the discrepancy Quality issues with expenditure sidedata. Hence, NSO prefers income data. The methodology used for calculating expenditure- side estimates in India’s national acco unts presents several limitations that affect expenditure-side data quality One key issue is that expenditure-side figures are not derived independently of the production-side numbers.
Components like government final consumption expenditure and net ex- ports are calculated on budgetary data and international flow of goods and services, respectively Gross capital formation involves multiple institu tional sectors. But its household com ponent relies on outdated surveys. Mo reover, estimates for the private corpo- rate sector are scaled up to account for unreported companies, introducing another layer of uncertainty
One major drawback is that the ra tios and proportions used for the hou sehold sector are dated and don’t adjust for economic fluctuations or vari ations over time. This could result in significant measurement errors, espe cially for physical assets like residenti- al buildings. Also, private final con sumption expenditure is often treated as a residual figure, and its allocation relies on a commodity flow method that uses fixed proportions based onol der surveys. So, expenditure doesn’t account for the dynamic nature of con- sumer behaviour or the broader economy thus, giving riseto discrepancy.
As for Mody’s “chronic job scarcity” issue, he again forgets to mention abo ut the latest Periodic Labour Force Sur vey (PLFS) data that reveals a positive trend in youth labour market partici pation-15-29 year-olds seeing an in- crease from 31.4% in 2017-18 to 36.8% in 2021-22. Similarly rates for 35-39 and 40-44 year-olds grew from 64% and 66.7% in 2017-18 to 71.1% and 73.7% in 2021-22respectively Overall, participation of persons aged 15 and above rose from 46.8% in 2017-18 to 52.9% in 2021-22.
Mody won’t mention this because it doesn’t fit with his narrative that “In- dia is broken’ incidentally to littlehis latest book. India’s growth num bers are backed by national data and endorsements by World Bank, IME RBI and other rating agencies. So, one should definitely take anything co- ming out of people who find that one cloud on a sunny day and declare it’s about to flood with a handful of salt.