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A new controversy has arisen after the GDP figures for the first quarter of the current financial year came out last week. Many experts have raised questions regarding the process of calculating GDP.
This has once again brought that old question to the center of discussion whether the economic growth visible on paper is actually visible in the lives of common people?
According to the central government, India's economy grew at the rate of 7.8% between April and June this year, which is more than the estimates of Bloomberg and RBI.
The government is calling it a major achievement amid global uncertainties. However, Subhash Chandra Garg, who was the Finance Secretary in the Modi government, raised questions on these figures, which sparked a debate.
Then leaders of some opposition parties also said that due to revision in last year's GDP figures, the current growth rate appears stronger than the reality.
Congress leader Jairam Ramesh has even called it "statistical gymnastics". But the government is adamant on its figures and Union Commerce Minister Piyush Goyal even said that in fact the opposition does not even have basic information about the economy.
In such a situation, the question is arising whether India's economy is performing better than expected, or is the picture of GDP figures not as strong as it is shown?
The issue of controversy related to GDP calculation and the ground reality of economic progress was discussed in detail with economy experts in BBC's program The Lens.
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Collective Newsroom's Director of Journalism Mukesh Sharma discussed the event with senior business journalist Alok Joshi, BCG India Chairman Janmejay Sinha, and economist Dr. Jayati Ghosh.
What is GDP and why the debate over how to calculate it?
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Senior business journalist Alok Joshi, regarding the controversy related to the GDP figures of the first quarter of the financial year, says that this controversy is mainly about the basis of comparison of GDP i.e. base year data.
But to understand the issue, it is important to first understand GDP and how it is calculated.
They explain that GDP or Gross Domestic Product tells how much economic production took place within the country's borders in a fixed period of time, such as a quarter or a year.
In this, GDP is measured by adding goods, services and export-import difference i.e. net export.
He said, if the government is saying that India's GDP growth rate has been 7.8%, then it simply means that India's total economic output in the current quarter from April to June was 7.8% more as compared to the same quarter last year.
But he also says that these quarterly figures are actually an estimate, it is not an accurate assessment of growth. These estimates are released so that the budget can be made accordingly, it takes one-and-a-half year to make the actual assessment of the year's earnings in the entire country.
He further said, "This is the first estimate of this year's growth and these estimates keep getting revised, so it cannot be said that this was revised only during the Modi government, the estimates keep changing."
Alok Joshi, quoting Garg's viral comment on social media, said, "The GDP of the quarter which was earlier reported to be around Rs 86 lakh crore, was later revised to around Rs 80 lakh crore. If the current GDP is compared with the old figure, the growth rate appears much lower."
Alok says that "according to Garg, this increase is not 7.8% but around 2.6%". And on some occasions he (Garg) also said that the actual growth appears to be almost zero.
Alok says that this is where the confusion arose regarding the GDP figures of the first quarter because former Finance Secretary Subhash Chandra Garg, who was a senior bureaucrat, raised questions on it. He has worked in the Finance Ministry for a long time.
Garg has also been the Executive Director for India at the International Monetary Fund and has been an IAS officer of Rajasthan cadre. He has been associated with important processes like budget making and was also on the post of Finance Secretary at the time of demonetization.
He said that critics' question on this issue is that if the base figure of the previous year has changed, then the new growth rate should be understood in the same context. On the other hand, the government says that the method of calculating the data and the base year keep changing from time to time, hence the comparison is considered appropriate only on the basis of the revised series.
He said, every government updates the method and base year of GDP calculation during its tenure so that the real picture of the economy can be revealed in a better way. This happens all over the world.
However, he also says that how much impact such changes have on the final GDP figures is a complex and debatable topic in itself.
If he said, it would be wrong to say that this government has made such a change.
He said, "From the question that Subhash Chandra Garg has raised, it is not my intention to question his intentions. But some political parties took his point in such a way that the government has made changes in the old figures to make the current figures look better, so that today's growth rate appears faster than it actually is."
However, they also say that this does not mean that no inference will be made from these data. He says that there is a difference between the data that is coming out now and the experiences of common people. If development is taking place then why do people not have jobs?
He says that employment figures should also be seen to understand true development.
Why is the progress of statistics not visible in ordinary life?
Dr. Jayati Ghosh, Professor of Economics at the University of Massachusetts, Amherst, first clarifies that the quarterly GDP figures should not be considered as the ultimate truth of the country's growth.
He said, these are estimates prepared on the basis of available initial information, which are called quick estimates. Such figures are later revised many times.
She says, "These may change at least five-six times and no one can say with certainty what the final GDP figure will be."
Then she further says that the government and the common people give so much importance to the GDP figures because in the eyes of both, it is an indicator that tells the direction of the economy and the condition of the common people.
She said, it is generally believed that if GDP increases then all these things will also improve. But the problem is that during the last 15 years the GDP in India has been continuously increasing, the per capita GDP has also increased.
Despite this, there was no similar increase in employment. And the income of common workers and people working on regular wages also did not increase in the same proportion.
Dr. Jayati says that despite the increase in GDP, one reason for not seeing that much impact on the lives of common people could be that "the actual growth may not be as high as is shown in the initial data."
She also says that whatever growth has taken place in India, it is clearly visible that inequality plays a big role in it. A large part of GDP growth is reaching the already affluent people. She said, "The benefits are becoming concentrated mainly in those who already have capital and resources. On the contrary, the benefits of that growth are not reaching the general public, laborers and farmers in the same proportion."
She further says that the "trickle-down" theory, in which wealth flows to the rich and benefits automatically reach everyone, has not been successful in practice.
According to him, the government should invest more in increasing the income of workers and farmers, and on basic services like education and health.
According to Dr. Jayati Ghosh, despite the employment figures increasing, a large number of people, especially women, are engaged in family work without pay. Therefore, merely increasing employment numbers cannot be considered a sign of economic improvement.
He says the real measure is real wages, which measure income after taking inflation into account, and this has not improved the condition of many people.
Professor Jayati Ghosh says that to strengthen India's economy, the most important thing is to increase employment and wages, because this increases the purchasing power of people and domestic demand.
She also says that the government has to balance economic growth and social welfare amidst global challenges, such as war and oil price fluctuations.
He gave the example that "the full benefits of lower global oil prices have not reached the common people, whereas when prices rise, the burden falls on consumers."
Jayati says that the government will have to change the system in which the already rich people get the maximum benefit of economic development. Instead, changes should be made in rules and policies to increase the income of laborers, salaried employees and farmers.
Also, the government should tax big capitalists and the more affluent class and use those resources on basic public services, such as health, education and social security.
She says that investing in these sectors not only generates employment on a large scale, but will also create a positive multiplier effect in the economy. Due to this, money comes into the hands of people, demand increases and the standard of living improves.
Jayati Ghosh also says that foreign investment can also increase only by increasing demand at the domestic level.
He said, "At present, India's economy is in a fragile state in many ways and investors around the world also understand this. The country's big industrialists themselves are not investing enough because they feel that there is not enough demand within the country."
"If we have to strengthen the economy, first of all we have to increase domestic demand. And demand increases when people have employment and their income increases. Therefore, both employment and wage growth are very important not only for the internal economic health of the country but also for the confidence of global investors."
Where does India's growth stand in the global market?
Janmejay Sinha, Chairman of Boston Consulting Group (BCG) India, says that India is currently among the fastest growing large economies of the world.
He said, "If you look at the macroeconomic indicators, the growth rate is strong. The fiscal position is relatively stable and the corporate balance sheets also look much stronger than before. However, after the free trade agreements, a new phase is starting and we have to prepare for that."
On the issue of inequality, he believes that poverty has decreased in India, but the gap in wealth and income has increased. He says that this is not only a problem of India but of the entire world.
They say that one of the main reasons for this is the increase in labor supply, due to which wages have not increased. However, they believe that this does not end the responsibility of the government.
However, he believes that the scale of success China has achieved in the field of advanced manufacturing is extraordinary and very few countries have been able to do so.
He said, "India has been growing at an average rate of 6 to 7 percent for the last 35 years. Only China has performed better than this during this period. In today's situation, China's growth rate is lower than India, China is also facing its own challenges, there are unemployment challenges, there are demographic problems. But despite all this, it has to be accepted that even today China is almost five times bigger than India's economy. And this situation they have created in the last 25 years, so China's achievement has to be accepted as an economic miracle."
At the same time, America gets the additional benefit of the dollar being the global reserve currency. Therefore, it is not appropriate to directly compare the circumstances of India, China and America.
