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India’s growth rate overestimated by 2.5%, says study by former chief economic advisor

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6 years ago

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[vc_row][vc_column][vc_column_text]A new study by none less than India’s former Chief Economic Advisor Arvind Subramanian may have punctured India’s much vaunted status as world’s fastest growing economy.

Titled India’s GDP Mis-estimation: Likelihood, Magnitudes, Mechanisms, and Implications, Subramanian’s working paper for the Center for International Development at Harvard University, US, is critical of Indian statisticians and the way India’s GDP growth has been estimated after 2011-12.

It says the expansion was overestimated by as much as 2.5 per cent between 2011 and 2017, that is, during UPA-2 and Prime Minister Narendra Modi’s first term. Rather than growing at about 7% a year in that period, growth was about 4.5%.However, it doesn’t break this down by year.

But this means India’s claim of being the world’s fastest-growing major economy may not have been true.

“The Indian policy automobile has been navigated with a faulty, possibly broken, speedometer,” says Arvind Subramanian, who was Chief Economic Adviser for Prime Minister Narendra Modi’s government between 2014 and 2018. He asserts that the overestimation is not political.

“My new research suggests that post-global financial crisis, the heady narrative of a guns-blazing India – that statisticians led us to believe – may have to cede to a more realistic one of an economy growing solidly but not spectacularly,” Subramanian wrote in The Indian Express, attributing the overestimation to “methodological changes”.

The previous Congress-led government changed the methodology in calculating gross domestic product in 2012. One of the key adjustments was a shift to financial accounts-based data compiled by the Ministry of Corporate Affairs, from volume-based data previously. This made GDP estimates more sensitive to price changes, in a period of lower oil prices, according to the research paper. Rather than deflate input values by input prices, the new methodology deflated these values by output prices, which could have overstated manufacturing growth.

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Subramanian carried out an experiment, one that many other economists have also been doing for India: he made an index of other data sources that could reflect what is happening in the actual economy, such as electricity consumption, two-wheeler sales, index of industrial production and so on. None of these were figures that came from the Central Statistical Office, which compiles the GDP statistics.

Subramanian’s index found that these indicators tend to move closely in step with the GDP number between 2001-’02 and 2011-’12. But from 2011-’12 to 2016-’17, there are huge gaps between them. The paper uses various methods, including indicators from India and other countries, to test mis-estimation in growth, all of which confirm the belief that GDP growth was over-estimated.

Subramanian insists that the paper is only the start, and much more research needs to be done. But, in looking at the data, he does offer one explanation for why the new methodology of calculating GDP might have thrown out bad data.

Based on the experiment, Subramanian finds that before 2011, the official estimates of manufacturing move along with other indicators, like the index of industrial production. But under the new methodology, this connection is completely broken.

The reasons for this are more complicated but, to put it simply, the paper suggests that the new GDP methodology does not properly take into account how changes in global oil prices (and possibly other “input” commodities) might affect actual figures. Ultimately, this means that the new GDP methodology has a completely flawed understanding of manufacturing numbers.

But this only explains about a 1 percentage point of the overall 2.5 percentage point over-estimation. More research is needed to understand what else is going wrong.

Subramanian points out that this isn’t just a matter of denting India’s reputation. Bad data would also affect policymaking For example, the Reserve Bank of India might have cut interest rates much earlier if it was known that GDP growth was that much lower, and the government might have moved much quicker to resolve the banking crisis or agricultural concerns.

According to the former top economic adviser, the popular narrative has been one of “jobless growth”, hinting at a disconnect between fundamental dynamism and key outcomes. “In reality,weak job growth and acute financial sector stress may have simply stemmed from modest GDP growth. Going forward, there must be reform urgency stemming from the new knowledge that growth has been tepid, not torrid; And from recognising that growth of 4.5 per cent will make the government’s laudable inclusion agenda difficult to sustain fiscally.”

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Dr Subramanian explains that when he was working with the government, he had grappled with conflicting data and “raised doubts frequently” with the government. “But the time and space afforded by being outside government were necessary to undertake months of very detailed research, including subjecting it to careful scrutiny and cross-checking by numerous colleagues, to generate robust evidence,” he says.

The paper has three recommendations for what India needs to do:

India must “restore growth as a key policy objective”.

India must “restore the reputational damage suffered to data generation,” not only by giving statutory independence to the National Statistical Commission (which currently has no independent members) but also by hiring people with “stellar technical and personal reputations”.

The entire methodology and implementation for GDP estimation must be revisited by an independent task force, comprising both national and international experts, with impeccable technical credentials and demonstrable stature.

On the other hand, the politically appointed NITI Aayog was seen as interfering with India’s statistical operations. Recently, word has emerged that the BJP is thinking about a new law to merge the main bodies that work on statistics, potentially undermining their independence.

 

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Video of Bill Gates enjoying Vada Pav with Sachin Tendulkar during Mumbai visit goes viral

Gates, currently touring India, has been making waves with high-profile engagements. Earlier this week, he touched down in New Delhi, where he held discussions with Prime Minister Narendra Modi and several Union ministers.

Published

2 weeks ago

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March 21, 2025

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Microsoft co-founder and philanthropist Bill Gates delighted his followers by posting an Instagram video featuring Indian cricket icon Sachin Tendulkar, with the playful caption, “A snack break before we get to work.” The brief clip captures the duo relishing Mumbai’s beloved street food, vada pav, whilst perched on a bench, ending with a teasing “Serving soon” message splashed across the screen.

Gates, currently touring India, has been making waves with high-profile engagements. Earlier this week, he touched down in New Delhi, where he held discussions with Prime Minister Narendra Modi and several Union ministers. His itinerary then brought him to Mumbai, where he met Maharashtra Chief Minister Devendra Fadnavis. The tech titan’s visit underscores his ongoing fascination with India’s innovative spirit, a theme he expanded upon in a recent blog post.

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Writing on his personal site, Gates reflected on the trip’s impact: “I came away with fresh perspectives because India is brimming with clever, driven individuals addressing some of the globe’s toughest challenges in ingenious ways.” His words echo sentiments he shared ahead of the visit, when he praised Odisha’s farmers for leveraging artificial intelligence to boost agricultural outcomes—a story that’s garnered attention for its blend of tradition and technology.

The vada pav moment with Tendulkar, a national treasure, adds a light-hearted touch to Gates’s packed schedule. It’s not just a snack break; it hints at a potential collaboration, though details remain under wraps. For Indian fans, seeing two legends—one from tech, the other from cricket—share a casual bite is a rare treat, blending global influence with local flavour.

As Gates continues his journey, his interactions spotlight India’s dual role as a hub of innovation and a cultural powerhouse. Whether it’s AI-driven farming or a street-side snack with a sporting hero, his visit is proving to be a feast of ideas—and vada pav.

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Manappuram Finance shares hit record high after Bain Capital announces $508 million stake deal

Shares of Manappuram Finance surged to an all-time high after Bain Capital announced plans to acquire an 18% stake in the gold loan provider.

Published

2 weeks ago

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March 21, 2025

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Manappuram Finance shares rise after Bain Capital deal

India’s gold loan provider Manappuram Finance saw its shares soar to an all-time high on Friday after Bain Capital revealed plans to invest $508 million for an 18% stake in the company. The move, analysts say, brings clarity to Manappuram’s management succession strategy and paves the way for stronger strategic control.

Bain Capital, a U.S.-based private equity firm, will subscribe to Manappuram’s shares and warrants at Rs 236 per share — a 9% premium over Thursday’s closing price of Rs 217.5. Following the transaction, Bain will jointly control the company along with other key stakeholders, referred to as ‘promoters’ under Indian regulations.

As of 12:05 p.m. IST on Friday, Manappuram’s shares surged by as much as 6.3% to Rs 231.08, marking their highest level on record.

Founder to step back as Bain gains influence

Founder and CEO V.P. Nandakumar, who has led the company for nearly four decades, will transition to the role of non-executive chairman once the investment is finalized. With Bain Capital now having rights to influence strategic decisions and appoint key roles including the CEO, analysts at Jefferies and CLSA have responded positively.

CLSA noted that the potential for re-rating of Manappuram’s stock is strong as new leadership takes over. Jefferies and CLSA have both raised their target prices by 14.6% and 20%, respectively, maintaining bullish ratings of “buy” and “outperform.”

Deal to boost gold loan business, offset microfinance losses

The deal is expected to close in the upcoming financial year and is likely to accelerate growth in the company’s gold loan segment, which currently contributes around 75% of its total revenue. With gold prices at historic highs, the demand for gold-backed loans remains robust.

Additionally, analysts expect part of the capital raised through the deal may be used to cushion the losses in Manappuram’s microfinance division. The company confirmed that Asirvad Micro Finance, its microfinance subsidiary, will withdraw its IPO draft filing amid changing market conditions and regulatory scrutiny.

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Alphabet’s $32 billion acquisition of Wiz marks biggest cybersecurity push

Alphabet has announced a $32 billion deal to acquire Wiz, reinforcing its cloud security offerings as it competes with AWS and Microsoft Azure.

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2 weeks ago

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March 19, 2025

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Alphabet to acquire Wiz for $32 billion to boost cloud security

Alphabet, the parent company of Google, has announced its largest acquisition to date with a $32 billion deal to buy cybersecurity startup Wiz. The move signals Alphabet’s aggressive expansion in cloud security as it competes with Amazon Web Services and Microsoft Azure in the cloud computing market.

A strategic investment in cybersecurity

The acquisition will integrate Wiz into Google Cloud, reinforcing its security capabilities to help businesses mitigate cyber risks. The deal, which follows Alphabet’s previously unsuccessful $23 billion bid, underscores the company’s commitment to securing a stronger foothold in the cloud security space.

Wiz, an Israel-based firm, provides security solutions that work across major cloud providers, including Amazon Web Services, Microsoft Azure, and Google Cloud. The company has gained significant traction, boasting clients such as Morgan Stanley, BMW, and LVMH.

Regulatory scrutiny and financial impact

Despite the high price tag, Alphabet appears confident in securing regulatory approval under the new U.S. administration, which has maintained a watchful eye on major tech mergers. Notably, the termination fee—over $3.2 billion—stands among the highest in M&A history, signaling both parties’ commitment to closing the deal.

Alphabet’s stock dipped nearly 3% following the announcement, reflecting investor concerns over its heavy spending, particularly in AI and cloud computing. The company may need external financing, given its cash reserves of approximately $23.47 billion as of December 31, 2024.

Growing importance of cybersecurity

The acquisition highlights the increasing demand for cybersecurity solutions, especially in light of last year’s global CrowdStrike outage that disrupted businesses worldwide. Analysts suggest that for Google Cloud to compete effectively with Microsoft Azure, it must offer a more comprehensive suite of security services.

Alphabet expects the deal to be finalized in 2026, pending regulatory approvals. Meanwhile, Wiz will continue providing its services across multiple cloud platforms, potentially alleviating antitrust concerns.

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