Sudipto Mundle is an emeritus professor and member of the board of governors of the National Institute of Public Finance and Policy (NIPFP). He has served as a member of the fourteenth finance commission. Prior to this, he has also served as the acting chairman of the National Statistical Commission (NSC). As the debate rages on the revised growth numbers which showed economic growth during the current NDA regime was better than that in the UPA rule, Mundle called the political slugfests over national statistics like gross domestic product (GDP) as unfortunate. On Central Statistics Office (CSO), Mundle said if the statistics office had a problem with panel's data, they should have written a dissent note.
Watch the full interview here:
Have you gone through the revision? For the most year, the revision is between 150 and 180 basis points. In some cases even 200 basis points. Is this how you envisioned it or do you see it a little confusing or difficult to digest?
I have seen the numbers but haven't had the chance to have a look at the details of all the adjustments that have been made, the new sources of data used, the quality and robustness of the data and so on.
However, let me say that it is very unfortunate that national statistics whether GDP or anything else becomes a subject of a political slugfest between the ruling party and the opposition. I have one takeaway from all this for all of us, it is to try and ring-fence the statistical production system from the government so that these types of controversies do not arise.
Having said that, I must say that I am very happy that finally after a delay of three years the government has produced what it calls the official set of back numbers because these are very important for all sorts of analysis both in private sector, researchers, government and so on. I just wish they would have done it earlier.
When my committee was meeting and CSO was a secretariat for my committee, it was not something that they were distant from. So, they were there and we kept requesting them for one year to complete whatever work they were doing. They said they were doing some calculations of their new numbers and so on. Till last July they did not and if they had a problem with the what the numbers had been put out then, they could have written a note of dissent or something, but there was nothing like that.
We did mention in the report that this work was ongoing and is not yet ready and now within two months they have come out with a different set.
I haven't looked at the robustness of these new sources, new adjustments because when the main source is not there you have to do some adjustments of one kind or another. It is your call which type of adjustment is the best way to go.
I just want to ask you whether complimentary or concurrent data are making sense because from 2005 to 2011-2012, we boasted of about the best savings and the best investment to GDP ever. Savings rate went up steadily from about 23-24 percent all the way to 38 percent and investment rate went up all the way to 35 percent, if that was the rate at which savings and investments grew between 2003-2004 to 2012, can it be that the GDP rate is so much lower compared to the current period when savings rate has dipped below 30 percent and we are apparently showing a higher average growth of 7.3 percent? The average for those 7 years in the new series it comes to 6.9 percent. Doesn't this look a little difficult to jell?
From what I remember the investment rate which is what matters had peaked just before the global financial crisis in the year 2007-2008 at somewhere around 35 percent and is now down to around 28 percent or thereabouts and it has been steadily coming down, it is not as if it has suddenly come down. In that particular year, because you are talking about internal consistency, I think that is an important problem, internal consistency, there are some issues.
You find that the year on which the growth rate came down very sharply, it came down in old series, in new back series, we had found the same thing when we did our computation. The data that was released yesterday shows that the investment rate was slightly lower, not hugely lower, slightly lower than the previous year but the net exports - that is net of imports which is the other big source of stimulus, there was a huge increase of over 20 percent and public expenditure also there was marginal difference, not a big change. So, something has to give, so something has to account for this huge dip in growth when none of the collateral indicators are pointing in that direction.
Come to 2008-2009 and it is exactly the opposite. There is a very sharp increase in growth which we all knew about. India and China recovered very fast as you know but you look at the numbers and that year the net exports actually dipped by 12 percent, investment rate continues to decline but at a slow pace and there is a big fiscal stimulus.
So, does the fiscal stimulus alone account for this huge increase in growth despite the decline in net exports is a question? There are other issues but let me just quote these two. There were two other issues of internal consistency which I think the CSO needs to look at because these numbers are now going to be scrutinised very carefully and people will raise these questions.
The other question I wanted to raise was bank loan growth. Now that is not a computed number, it is something you get when you add up the loan growth shown by the banking system, the Scheduled Commercial Banks, it is a number that Reserve Bank of India (RBI) releases every week in its weekly statistical supplement. In FY06, it was standing at 31.6 percent and subsequent years it is 24 percent, 25 percent, 21 percent, there is one year of 14 percent which is FY09 - the year of the crisis, but it is still at all times above 15 percent. So it is between 15 and 31 percent for the seven years where revised data has come. If you compare that since FY14 when the new series of GDP is in vogue, the loan growth is systematically at 8 percent - 8, 8.2, 8.4, 7.5. Now can these co-exist that you have a lower GDP, for seven years the average loan growth is between 15 and 30 percent and then you have a higher GDP at a time when loan growth is in single digits?
This we have been seeing for quite some time now and what we should look at actually is not overall credit growth, but non-food credit growth; the other one is very linked to agriculture and so on, the rest of it. There can also be changes, you can have disintermediation and that kind of things not going through the banking system, but all that being said, I think it has been noted that this has been a major constraint.
That is what this whole part of what lies behind this whole controversy going on between the RBI and the finance ministry is about loosening up on credit. So we have known that the credit growth has been very slow, fortunately in the last couple of quarters I find that it is going back to 15 percent plus.
My point is more limited. I am just asking you if credit growth is as high as 30 percent, and as we were noticing at that time, investment rates are also were jumping from 25 percent to 35 percent in those years up until FY09, then chances are it will create more jobs, more output, more consumption. So is it possible that the average GDP now can be higher than the average GDP then. Let us also remember that is the time when India became part of BRICS, why, because it was considered a high growth country. So suddenly to see all that growth being washed away by the statistician is a little puzzling.
This is the same point, it is another aspect of the same issue you are raising about collateral numbers. One must always be careful when producing GDP estimates, you have to still keep an eye on whether it is consistent with everything, this what you might call triangulation. Other sources of information, does it fit and I mentioned a couple of them, you have mentioned another one about credit, and I agree with you that these are questions that the CSO must now think about addressing because people will ask these questions.
Have you gone through the back series and why is it so different from yours?
What was the problem of the back series? I think they should have done something about it in three years, but the problem was that you did not have the data such as MCA-21 in particular, but also other new sources that are being used in the new 2011-2012 based GDP series for the earlier period. So, you have to make some adjustments or as I was mentioning, you have to do what we call 'jugaad', but you do it in a way that you find it least disruptive and meets maximum credibility knowing full well that you do not have actually the quality of robust numbers that you want.
Now what we did is we did not produce any data of our own, we assumed that the 2004-2005 base figures of CSO were correct, that the 2011-2012 figures were correct, but there was a gap between these two, the projection of the old base and the new base and that we distributed incrementally between this long period in between so that in any given year you did not find much change in the growth rate as per the old estimates and our back series and yet you ended up in 2011-2012 at exactly the same GDP level which the new series gave you.
So this is our way of doing it, of course, the assumption is that there was a gradual adjustment in the production process and that is what we tried to mimic.
Now, somebody else can do it in some other way. Of course, if you have new sources of data and there is some reference rate in the new series, they have other information which was not available for us but in the CSO data that was there earlier, you can have different sets of numbers. However, that is what will have to be examined. I do not want to take a view on that in a cavalier manner.
Let me come to another issue. Corporate earnings growth, if you remember, those were the big years of stock market exuberance as well. I am referring to FY05 to FY08-FY09 and in fact even going on to FY12. After a big dip in FY08, we again saw markets climbing. Now if you look at the Sensex earnings, Sensex EPS data, it starts at about Rs 400-420 in 2005 and steadily climbs to Rs 700, Rs 800, Rs 1,000, by 2012 we come to Rs 1,100. So it is a climb of about 12 percent compounded annual growth rate. Whereas if you look at again 2014 to 2018, it has been around that Rs 1,300, not much change because EPS growth was between 2-3 percent in those years. Again would you say that GDP can grow for a sustained period at a higher level if corporate earnings do not grow much, is it possible?
Corporate earnings is one part of the economy. It is just the organised sector and so forth. However, it accounts for a fairly large part of GDP. So you are quite right that these things have to in a sense jell and this is what I mean by internal consistency of your numbers. I was referring to within the statistics that have been produced, you are referring to collateral statistics whether it be the credit flow or the corporate data and so on. So, these are questions I am not going to answer. It is for the CSO to answer how they account for all this.
Do you think the presentation of the data should not have been by NITI Aayog; that gave it a political colour?
I must say I have not really applied my mind to it. One thing is there that there is a kind of oversight role which planning commission used to have before and which I think NITI Aayog has now which includes the work being done at Ministry of Statistics and Programme Implementation (MoSPI) and so on.
For instance, I think the committee that appoints the chief statistician is chaired by the Vice Chairman or Vice President of the NITI Aayog. So they have a role in this, but in hindsight I think it may have been in the interest of the government to let MoSPI deal with it and maintain a distance because now as people are saying that the ministry is not independent, so it would have helped. However, I do not know whether they thought about it earlier, but NITI Aayog does have a role on the statistics production process.