Business & Economy

PM's Economic Advisory Council refutes Subramanian's paper


New Delhi, June 19, 2019

As promised by its chairman Bibek Debroy, the PM's Economic Advisory Council (PMEAC) on Wednesday came out with a "point-to-point rebuttal" of former Chief Economic Adviser (CEA) Arvind Subramanian's research paper that claimed India overestimated its GDP growth figures post 2011-12.
The PMEAC highlighted several flaws  in Subramanian's research report.
Subramanian, in his paper 'India's GDP Mis-estimation: Likelihood, Magnitudes, Mechanisms, and Implications', had claimed that India overestimated the GDP growth rate by about 2.5 per cent per year between 2011-12 to 2016-17.
The PMEAC said that Subramanian used 17 indicators to express his skepticism about the growth rates post 2011-12, a majority of which have been taken directly from Centre for Monitoring Indian Economy (CMIE), a private agency that is not a primary source of information, as it collects data from different sources.
The council also questioned Subramanian's claim that the 17 indicators used are strongly co-related with GDP in the period from 2001-02 to 2016-17.
".. he neither mentions the strength of correlation nor is it clear if there are other indicators that are more strongly co-related with GDP in either of the two periods he evaluates," PMEAC said.
"Further, the author performs a cross-country regression when he compares India to the performance of 70 other countries. To put it simply, as per the author, if India doesn't fall on the regression line for other countries, India must be doing something wrong," the council said.
"The fact that India is an outlier cannot automatically lead to the inference that India's growth has been overestimated, simply because the drivers of India's growth may have changed in the second period as per the author's classification," it added.
The council believed that Subramanian's paper had an institutional bias against the Central Statistical Office (CSO).
In its concluding remark, the council said that "Arvind Subramanian seems to have made a hurried attempt to draw conclusions about India's complex economy and its evolution.
"Despite the fact that Subramanian's approach and his conclusions appear impulsive, let's assume that his exercise to show mismatch between 17 high frequency indicators and GDP growth is actually right. Even in such a scenario, there are robust explanations that debunk his broader conclusions that the GDP is overestimated," the council said.
Apart from Debroy, the primary contributions for the PMEAC report came from Rathin Roy, Surjit Bhalla, Charan Singh and Arvind Virmani.

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