Former CEA K V Subramanian tears into economists calling Indian growth fake

Former chief economic adviser (CEA) K V Sumbramanian today tore into the economists calling India’s GDP rally ‘fake’ and ‘overestimated’. Arguing that there are large discrepancies in the US GDP estimates too, Subramanian, currently working as Executive Director (ED) at the International Monetary Fund (IMF), asked will the economists taking a dim view of the Indian growth label the U.S. growth ‘fake’ and ‘overestimated’.

“Economists who call India’s high growth ‘fake’ and ‘overestimated’, will they do the same for the USA?” he said in a post on micro blogging site X, adding that he has shown very large statistical discrepancies in US GDP estimates in his column in one of the national dailies. “Using the logic used by these economists, I ask: Will these economists label US GDP growth as ‘fake’ and ‘overestimated’?” he said in the X post.

It may be noted that former CEA Arvind Subramanian, who preceded K. V. Subramanian, said in a Harvard University Working Paper that changes in data sources and methodology for GDP estimation since 2011-12 has led to a “significant overestimation” of growth. Also, Ashoka Mody, a visiting professor of International Economic Policy at Princeton University, wrote in an article titled 'India’s Fake Growth Story' last year that India’s GDP statistics are part of a branding and beautification exercise ahead of the G20 meeting. The article was published on September 23.

Subramanian countered, saying that doubts are raised by some economists over the veracity of India’s GDP estimates typically happens when GDP growth is high, but no such doubts are expressed when growth is slowing, as after the Q2 GDP print. “Such asymmetric questioning of the veracity of GDP estimates — non-existent when growth is low and vociferous when growth is high — is typically reserved for India’s data,” Subramanian said.

He goes on to explain a key discrepancy being witnessed in the US GDP calculation and asks whether the economists will question the same.

“Now, take into account the quarterly estimates of real GDP and real Gross Domestic Income (GDI) for the US over the last decade. GDI measures the income that individuals and businesses make through wages and profits, while GDP measures the value produced in the economy. To understand the key takeaway, note a fundamental tenet of economics: people’s income must equal the amount they spend or save. Similarly, for any economy, GDI and GDP should be identical, with minor differences attributed to statistical discrepancies," he adds.

Subramanian argued that this has been the case in the US for a couple of years. “What’s happening in the US is that the statistical discrepancy between real GDP and real GDI has widened over the last eight quarters and is now over $800 billion. At 2.7% of GDP, this discrepancy is incredibly large, as US’s GDP growth itself is only 3-4%. Such a large discrepancy, which is more than the entire GDP of about 150 countries, has never prevailed over the last 80 years," he said.

“Going by the logic employed by Indian economists who use discrepancies in India to attribute India’s GDP growth as ‘fake’, would they label GDP growth in US as also ‘fake’?” he asked in the article.

Subramanian underlined the point that large statistical discrepancies can manifest even in mature economy like the US. “Rather than painting politically motivated narratives, our efforts should be to improve the quality of economic statistics,” said Subramanian.