A level Economics: India's Economic Data could be fiction

 T C A Sharad Raghavan in The Print

The next time somebody, even the Prime Minister, boasts about India being the fastest-growing economy or that it is the fifth largest in the world, ask them to prove it. Even Modi will not be able to. The reams of government data that will be thrown at you will almost all be incorrect, and the analysis done on them will be guesswork at best. The reason for this is not some convoluted statistical reasoning. It’s much simpler: the data is outdated and largely meaningless. The most recent actual data for the Indian economy we have is about 12 years old.

Amrit Kaal may be the target, but we don’t even know our starting point.

The old…

Let’s take something as conceptually simple as per capita gross domestic product (GDP)—basically the total output of the country divided by the population. It serves as a broad proxy to denote the wealth of an average Indian. Should be simple enough to calculate, right? Let’s start with the numerator, which is the GDP figure.

The agriculture sector probably has the most up-to-date data when it comes to the overall GDP measure, and even that comes with a delay of about two years. The Directorate of Economics and Statistics in the Ministry of Agriculture and Farmers Welfare compiles the data on India’s agriculture output for any given year, and releases four advance estimates, before the final figures come out about two years after the collection.

Such a ‘short’ delay of just two years might have been okay if agriculture formed a larger part of our GDP. But with a share of less than 20 per cent, accuracy of agricultural data, while important, doesn’t materially improve the quality of the overall GDP number.

From here, it just becomes worse.

The manufacturing sector is divided into the organised sector and the unorganised sector. Data for the organised sector used to come from the Annual Survey of Industries—but with a lag. Now it comes from the much more up-to-date MCA-21 database compiled by the Ministry of Corporate Affairs. That’s not the problem here. The unorganised sector is.

The unorganised or informal sector, by definition, is difficult to quantify because there are no formal metrics through which such an audit can take place. If you could effectively measure it, it would not be ‘unorganised’ or ‘informal’. Rather, it is ‘unorganised’ because you can’t measure it.

Policymakers have gotten around this problem by periodically doing a nation-wide survey. Using the findings of the survey of the informal sector, the statisticians in the government then arrive at a ratio that can neatly be multiplied by the size of the formal sector, to arrive at an approximation of the size of the informal economy.

So, let’s say the formal sector is Rs 100 in size, and the ratio they have arrived at is 1.25. The informal sector would then be estimated at Rs 125 (Rs 100 x 1.25), which then gives you the total economic output of the sectors being measured—Rs 225 (Rs 100 + 125).

Ideally, this would work well. However, at a time when the latest survey of the informal sector—the Unincorporated Enterprises Survey—is from about 13 years ago, well before demonetisation, GST, and Covid, we don’t really know what shape the informal sector is in right now.

Then we come to the services. Trade, hotels, restaurants, real estate, all have significant contributions to GDP and sizeable informal segments, all of which are based on surveys conducted in 2011-12 or thereabouts.

Just think about the sea change the Indian economy has witnessed since 2011—both the positive and the negative. Inequality has widened, but access to basic essentials has improved. Demonetisation wiped out 86 per cent of the cash in the system overnight. The indirect tax system was overhauled with GST. A pandemic disrupted the economy like never before.

And then there are the myriad smaller changes that over time become big. The movie theatre industry has changed so dramatically. An entire generation of entrepreneurs are minting money by creating two-minute videos, forget any sort of asset creation. None of these or the million other changes to the Indian economy over the last decade are being captured in the data.

So that’s the numerator of the per capita GDP formula—almost every aspect of it is outdated. The denominator is the population of India, measured by the Census of India. When was the latest one? You guessed it, 12 years ago! 

…and the uncaptured

So, if the GDP number as well as the population size are both more than a decade old, then when somebody talks about the size of the economy or per capita income, what are they talking about? It’s not the present, for sure.

Our data issues don’t end there. The other big number on everybody’s mind is inflation. As this analysis shows, the Consumer Price Index—which is what the Reserve Bank of India uses to measure inflation—falls woefully short of truly measuring the impact of rising prices on the people. The weightage for food is too high, while that of fuel and services such as health, education, and transport and communication are too low.

So, you have a situation where the overall inflation rate gets affected by a change in the price of wheat, even though 80 crore Indians currently get it for free. Or you have a situation where fuel prices shoot up in response to global oil prices, but the overall inflation rate barely registers it. And, while the middle class increasingly prefers private hospitals and private schools (don’t forget tuition classes), this increased spending on health and education is not getting captured.

In fact, with the latest usable Household Consumption Expenditure Survey being only available for the year 2011-12, we actually have only a vague idea about how people are spending their money and how much they are earning.

It’s fine for developed countries like the US to not update their CPI for around 40 years—though even there it might be time for a revision—because the rate of change of these basic economic indicators is much lower there than in an emerging economy like India. Here, a decade is a long time, and a lot can change during it.

It’s not just these, though. Several lesser-known but key surveys that underpin the very basic estimates we have of the economy haven’t been updated in years. The Economic Census is nine years old, the employment survey is 12 years old, as is the base year of the Index of Industrial Production. The input-output tables, critical to measuring the relationship between the production and use of various items in the economy, are 15 years too old.

The government can say all it wants about Amrit Kaal arriving and India becoming a developed nation by 2047, but if it wants to seriously achieve this trajectory, it is first going to have to establish where we stand now.

Voters can be convinced China is defeated, but how do you convince jobless they’re earning?

Yogendra Yadav in The Print

It must have been hard for Nirmala Sitharaman. With all her sharp mind, sharper tongue and sharpest sense of political opportunity, it wouldn’t have been easy to manage the Narendra Modi government’s budget for 2022-23.

After all, she happens to be the finance minister of an economy fast approaching 5 trillion dollars GDP while the income of 80 per cent of the families to whom she was presenting the budget, has been declining for two years now. Most of them have had to dip into their savings or take out loans, just to survive. Unemployment is at its peak, triggering job riots in Uttar Pradesh and Bihar the week before.

Small-scale businesspersons — her party BJP’s traditional supporters — are in a bad shape, unable to recover from the triple whammy of demonetisation, GST, and lockdown. Besides, this budget was to be the moment of glory for the much-touted “doubling of farmers’ income” promise, which now seems only a few light years away, beyond the newly discovered ‘Amrit Kaal’. 

Managing the art of hiding in plain sight

The finance minister also had the unenviable challenge of hiding a little elephant. The-elephant-that-must-not-be-named. As practically everyone’s income and wealth were suffering a decline, a prodigious child of Bharat Mata managed to defy all odds — the economic meltdown as well as the pandemic-induced lockdown — and emerge as glorious as Sitharaman made all of us feel in her budget speech. But why not? As the pandemic struck, this little elephant’s empire was worth Rs 66,000 crore. By the time the finance minister was presenting her budget, the same empire had grown to a little more than Rs 6.75 lakh crore. Another jewel in Bharat Mata’s crown is that the combined wealth of India’s top 100 billionaire families was one and a half times the size of the budget she was planning to present.

Then there were some minor money matters to be sorted. This was a little tricky, but nothing that could not be managed by a fine budget speech. Even before the pandemic had struck, the Modi government had been spending a few more trillions than it could earn. The Reserve Bank of India (RBI) had already been ‘robbed’ by the government, leaving little space to dip into. The finance minister even tried hard to sell the country’s property, but that also seems to not have earned much. And of course, taxing the rich was ruled out. The only option was to borrow further. But the interest payment on previous borrowings was already one-fifth of the entire expenditure.

As if all this was not enough, Sitharaman was placed in a country with “too much democracy” and “free” media . Perceptions have to be managed. People have to be managed. Orders have to be followed.

We must thank God for Economics and English. They make for such a lovely couple. Their charm obviates the bother of having to explain what goes on in the business of economy to those whose life it affects. Thankfully, though most of them consumed the information in one of the Indian languages, neither the budget nor the commentaries were thought through in those languages. English creates knowledge about the economy. Other languages disseminate this wisdom. English takes your attention away from the wretched everyday world of the ordinary people; they make a guest appearance in their costumes, just as ‘emerging economies’ do at Davos. The jargon of economics puts a gloss on the most painful and humiliating experience. 

Be grateful, for you have support of lackeys

Nirmala Sitharaman must be grateful to the media. Ever since the Union Budget became a television spectacle, the more content is generated about the economy, the less we understand it. A small club of businessmen, all in awe or need or fear of the government, represent the economy. An even  smaller club of English-speaking economists, mostly sarkari and darbari, or representing a business interest, represent knowledge about the economy. Thank God we have never heard of conflict of interest. And a set of anchors, ignorant or compromised or both, act as interlocutors. It makes for a perfect setting for a theatre of power.

No one makes much of a mismatch between the text of the budget speech and the numbers in the budget document, between past promises and present performance, between claims and truth. Remember the time when the Economic Survey numbers contradicted the data presented in the budget the very next day? Or the spontaneous manner in which the finance minister made up pandemic relief package figures on a daily basis? Or her imperious silence on the doubling of farmers’ income this year?

This is the theatre of power where everyone else feels awkward on the finance minister’s behalf, bending over backwards to find assumptions, theories and rationale underlying a series of disconnected assertions. If all of this is not enough to fill air time, the finance minister’s speech has a lot more — drones for farmers, old schemes renamed, old promises reinvented, acronyms – all that stuff which passes for news.

Democracies always have some trouble-makers. Like ours has the irreverent Ravish Kumar, the acerbic Rathin Roy or the predictable Jayati Ghosh. Thank God, there are enough trustworthy voices in the media to sideline such outliers. A few phone calls in the afternoon can tweak the agenda for evening panel discussion. And not to forget the ideologues who would remind you that creating jobs is not the job of the government, who can be trusted to rubbish the idea of taxing the super-rich.

Well, the media can be managed and more than half the job is done, but then comes the problem of political management. Now it certainly does seem to be ‘too much democracy’. There are voters to be persuaded and elections to be won. Here, Sitharaman needs something more than good English and bad Economics. TV channels can help you convince a voter that India has battered Chinese forces in Ladakh, but how do you convince an unemployed person that she is earning wages? How do you convince a farmer that their income has doubled? For that, you might have missed, we have a sharp political strategy and an even sharper electoral machine.

Uttar Pradesh is a case in point. The finance minister would certainly have had to announce something major for farmers or the unemployed youth, but thankfully that is not what this election is about. This election is about ‘Mr Jinnah’, the temples in Ayodhya and Varanasi and the “gunda raj” during the Samajwadi Party’s regime. Simple recipe: keep the Hindu-Muslim pot boiling, use money-media-muscle to stitch a careful caste coalition and let your good English take care of the bad economics. And if matters go out of hand, you can always throw in some additional ration and cash transfers.

Ain’t that tough? Like every TV expert, I must bow my head to Nirmala Sitharaman for managing a very difficult task. Final score? 8 out of 10, I guess.