The new RBI Governor will be much better as he is more of a team player and displays greater maturity, NITI Aayog Vice- Chairman Rajiv Kumar explains in an interview. He also, for the first time, explains why the Aayog got involved in the back series GDP calculations. Excerpts:
The RBI and the government have been in a public stand-off for almost three months...
I think that was completely unnecessary. Everybody is part of the macro management team of the country. There are always differences in the manner any two economists look at the economy and that is expected. But you resolve your differences through discussions that are kept within the team, and come to some understanding. This is where I think the new Governor will be much better. He has a lot more roundedness and a lot more maturity in him.
Why was NITI Aayog included in the back series GDP data estimation process?
We have been waiting for the back series data since 2015. Then came the Mundle Committee report for which estimating the back series was not a part of their mandate, but they did it. The committee was on recommending the set statistics for the real sector of the economy.
They compiled a fairly simplistic econometric model where the general feeling was that it was not satisfactory and the government did not accept those findings.
That, I am assuming, brought pressure on the CSO (Central Statistics Office) to come out with their version of the ‘back series.’ They came to NITI Aayog and asked us to have a look at the output. I agreed, and said rather than just me looking at it, why don’t we ask this to be looked at by a group of statisticians, to which they agreed. We got a first meeting organised where 8-9 of the best statisticians came and there were some issues that were raised. We had already called a press conference and then, we cancelled it because we felt that the back series was not yet ready.
Then NITI Aayog organised another round table about a month later. We discussed the final results and the statisticians endorsed it. Having been involved, CSO asked NITI if the report could be released together. I agreed. I hadn’t realised the possibility of any of this political drama at the time.
One of the criticisms of NITI Aayog’s involvement is that it put in doubt the method chosen for calculation of the back series
The method that was chosen, and the statisticians made sure of that, was the method recommended by the UN System of National Accounts (SNA) 2008, and that’s the standard global practice. How can anybody argue otherwise? If there were political motivations, then why would the CSO release the Q2 growth data, which showed slower growth than Q1, just three days after the back series? There is no political connection. or pressure. The whole argument that this has become political has no legs.
The new data show we never grew above 9% in the last decade or so. Does this mean we have to re-evaluate our view of what the economy was like?
I strongly think so. We need to accept that we need to work much harder to get to those magic numbers of double or even near double-digit growth. It has been said several times before, including by the then Chief Statistician of India T.C.A. Anant, that there was a significant overestimation of the rate of growth of the services sector, which is why the sector’s share in the GDP and its growth had been exaggerated. There are three sub-sectors where this happened most: communications, financial services and unorganised trade.
Some of it you can see very clearly.
For example, telecom. First the growth in the number of subscribers was taken as a proxy for the growth of value-added in the sector. It was not value-added. Instead, what should have been done was looking at either revenue receipts or at least the number of data or voice minutes used for estimating growth. This is what they are doing now in the new series. So that showed a sudden drop.
Then, the RBI was being treated as a market entity. The SNA 2008 says that the RBI should not be treated as a market entity so that only the costs should enter the accounting and not all the profits that they make.
Earlier, all the dividends that they paid to the government came into the calculation. This change also led to a huge drop in the new estimates of service sector growth.
Similarly for the unorganised trade sector. Based on a 1999-2000 survey, the CSO used a general trade index (GTI) for estimating trade growth.
Having done that survey in 1999-2000, on how trade was related to the real economy and having got that coefficient, they kept extrapolating on that basis. Now, for the 2014-15 data onwards, they used the sales tax data. The sales tax data gives you the collection and growth of sales tax, and this is a percentage of the total trade taking place. So from there you can approximate the trade growth much better. Having done that, you find that the number has dropped dramatically.
Then there is this whole argument about the ‘smell test’ and how the numbers don’t feel right. One of the points being made was to do with investment. That 38% of GDP was invested, and it’s only producing 8% GDP growth whereas now investment is only 28-29%, so how are you producing 7% GDP growth.
As all economists know, there is the capital-output ratio. If that 38% of investment share has in it a lot of investment from the banks to the power plants, and let us assume as an exaggeration that all of them are currently stranded, then they are not producing any output. Or if they are investments in highways that are not completed. So, the capital-output ratio can become very high. You can have huge investments, but they don’t have to necessarily show up in output. If investments are being converted into NPAs, then they are not going to produce the output, and so to link the two is incorrect. By casting aspersions on these estimates, you are questioning the very professional integrity of the CSO, which is a highly professional and competent organisation..
There are reports of the government mulling a farm loan waiver...
If there is genuine farmer distress, it has to be addressed.
Given that this is not the first time this will be done, and some State governments have already done it, I think the government will be unresponsive if it did not take steps to address farmers’ distress. I have never been a fiscal hawk. I have always said that fiscal deficit target is there, yes.
But you can’t have a fiscal fetishism. If there is a need, you cannot tell me don’t do it because it will breach the fiscal deficit. If some real concerns of the people have to be addressed, public expenditures have to expand.