Fudging Statistics

Authored by jain and govil - astute political observers

Modinomics is yet to deliver – was the Op-ed written by the Editorial Board of Financial Times published from London -(https://twitter.com/ft/status/1069894756929585152. They have raised the following issues in the article.

• Modinomics yet to deliver to many (https://steemit.com/financialtimes/@ajain/ft-rebuttal-part-1-assessing-how-modinomics-has-reached-the-poor)
• Failed infrastructure overhaul (https://steemit.com/india/@ajain/ft-rebuttal-part-2-assessing-failed-infrastructure-overhaul)
• Failed attempt to turn country into a manufacturing powerhouse (https://steemit.com/india/@ajain/ft-rebuttal-part-3-assessing-make-in-india)
• Demonetization ineffective (https://steemit.com/india/@ajain/ft-rebuttal-part-4-demonitization)
• Economic growth squandered away on symbolic projects (Statue of Unity) (https://steemit.com/india/@ajain/ft-rebuttal-part-5-economic-growth-squandered-away-on-symbolic-projects)
• Fudging statistics
• NPA’s (Non-Performing Assets of Banks)
• RBI Fracas (Reserve Bank of India)

We have initiated a series of eight articles where each issue raised in the Financial Times Op-ed as listed above, will be taken up and put under the microscope of facts and data to critically test the validity of the statements made.

The Op-ed draws this conclusion, of fudging statistics, with respect to India’s GDP growth rate figures. It is a bit surprising that the Editorial team draws the conclusion that a faux pas while reworking of GDP figures was actually an attempt by the government to fudge data. ‘Changing history’ as the Editorial Board puts it. Let us examine what is the big fuss about GDP numbers and how appropriate the assessment of the Editorial Board is.

The Modi Govt's entire vision is to propel India on the world map as a significant player. In all their thinking and planning, India becoming competitive on the world map took a front seat. Consequently, all the plans that the Modi govt drew up, kept a global perspective in mind. Accordingly, India started aligning to the world standards, defined projects to a global scale and beyond, got leading edge technology from across the globe, and so on so forth.

When it comes to global comparison, one of the critical dimensions is to examine how India calculated its GDP and reported the same to the world. This dimension was critically important for the country because for India to benchmark itself against the best in the world, India would have to do the same using global standards and practices. Accordingly, India decided to follow the SNA standards defined and circulated under the aegis of United Nations (UN), the European Commission (EC), the Organisation for Economic Co-operation and Development (OECD), the International Monetary Fund (IMF) and the World Bank Group. Under these standards, there were two important dimensions that required India to rework their GDP figures in accordance with world standards. One was the ‘Base Year’, and, the second was the ‘Valuation’. Needless to mention when these changes are adopted it not only redefines the basis for future data, but it also necessitates a reworking of back data to make comparisons meaningful. In fact, the decision to change the method was arrived at in the previous regime but for reasons best known to them they dithered, hesitated and did not implement. Or, maybe they deliberately deferred the decision, knowing full well at that time that the 2014 elections were round the corner, and that the changed figures would seriously dent their narrative. Modi government, however, took it up in the right earnest and went ahead.

India’s GDP numbers were based on ‘Base Year’ as 2004-05. This obviously did not reflect the actual situation very appropriately. In today’s fast-changing world 10 years plus (in this case it is about 14 years) is too long a time as the world undergoes extensive changes during this time period. The OECD task force assisting the drawing up of SNA standards themselves came up with a recommendation for re-basing data every five years (ironically it was the UK who had put forward a suggestion to rebase figures every five years. See the box below where the suggestion put forward by the UK in the working group of SNA Standards is reproduced).

India took a decision to re-base the GDP figures with 2011-12 (FY 12) as the base year.

The second dimension was the ‘valuation’ method to be used. Here India was clearly out of sync with World standards – the SNA standards. The data was reworked with the ‘market value’ based valuations as per the recommendations of SNA 2008 standards. See box below where SNA standards have been quoted.

If these two actions were logical, and hence taken by the government, then what is the whole brouhaha all about? Here comes in the political angle. The figures reworked show the previous government’s claim on GDP in poor light. The matters became even more complicated as the working committee appointed by the government to come up with recommendations came up with a working in the first instance that turned out to be an error. In the internal discussions and debates, it was found that the committee had erred on certain workings and they were corrected by the CSO (Central Statistical Organisation) of Govt of India. The corrected final workings were then released by the CSO as official GDP data with the base year 2011-12. The problem, however, happened because the working committee in the meantime made available the data in public domain which was found to be incorrect. They should have refrained from doing so in the first instance itself. This provided a battleground for the current regime and the erstwhile regime to have a slugfest on any and every platform they got access to. The slugfest between two political opponents is quite understandable given that this is an election year and elections are just about a couple of months away.

So where does this leave the Editorial Board with respect to their comment – Government indulged in fudging of data. Frankly, they are pretty much exposed for having a prejudiced mindset. That a common man may take sides on an ill-informed basis is quite understandable. An economist turned politician (a.k.a. Manmohan Singh, Chidambaram, Raghuram Rajan – almost, Amartya Sen, Montek Singh Ahluwalia, etc.) will make political statements is also understandable. A financial publication may embed politics here or there in their financial analysis, is also somewhat tolerable. But for a financial publication to indulge in rank bad politics on a financial issue, and, that too disregarding the financial merits, is nothing short of blasphemy. And that is precisely what Financial Times has done. For a leading and prestigious financial daily like Financial Times to make such sweeping assessments on financial matters on a totally political basis disregarding financial merits, and, to go to the extent of suggesting that the government fudged the data, is rather unfortunate and unbecoming of the publication. It needs to be condemned with all possible strength.

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