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The real reason why Arvind Subramanian released his controversial GDP paper; hear it from horse’s mouth

FE Online
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Days after courting controversy after claiming that India’s GDP may have been overestimated, former Chief Economic Advisor (CEA) Arvind Subramanian on Wednesday defended his argument.  The noted economist who had earlier claimed that GDP has been overestimated by 2.5 percentage points between FY12 and FY17 said that the framework used by him was “not to estimate but validate" GDP growth estimates from the demand side. The actual average GDP growth for the period under review may have been nearly 4.5 per cent, sharply lower than the official estimate of about 7 per cent, he had then argued.

How could major shocks post-2011 including demonetisation, trade war, twin balance sheet crisis, de-globalisation among others just impact GDP growth marginally, he asked. Speaking further, he also said that no country globally has growth at 7 per cent plus with exports growth below 5 per cent. The deflator for GDP was underestimated, which led to overestimation of real GDP, he added.

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“Number of technological questions were raised. How can GDP be ensured with just four variables? I wasn’t trying to replace the CSO. Can’t be so vain. Why should macro indicators like import, export, credit be negatively correlated with growth?” he added.

“Why should GVA manufacturing and IIP manufacturing have weak correlations? Why should they go from strong positive to negative correlation? It’s odd … I used a framework not to estimate but validate GDP from demand side,” Subramanian also said at the event.

On criticism over not taking into account growth in revenue and productivity in the paper, former Chief Statistician of India Pronab Sen responded saying that improvements in technology and automation has resulted in growth in productivity.