There could be a lot of confusions as to what is the real picture of India’s gross domestic product (GDP) if there are multiple revisions in its estimate. This would confuse even the Reserve Bank of India (RBI) economists who have been monitoring the economic conditions regularly. That is primarily because the data enables the central bank to take quick measures to improve the country’s economy with its monetary policy.
Considerable Volatility in Statistics
In a note, Economic and Policy Research Department said that the first estimate of GDP normally underestimate the growth though it is quite possible about its opposite directions. However, that kind of instances is only small in numbers. As a result, the department flagged off considerable volatility in the ministry of statistics initial estimation of the GDP. Therefore, it leads to questioning as to how credible the data about the country’s economic activities, which is the third biggest in Asia. There are already enough questions among investors as to how the official data are taken in a country where there is no employment report on a timely basis. There is also no data on retail sales data to reach any conclusion.
A number of changes were implemented over the years on the calculation of economic growth, as well as, inflation and jobs besides taxes. It is quite natural that this kind of multiple revisions drives debate on the government data credibility that was once hailed for its thoroughness, economic times reported.
For instance, the central statistics office has estimated 6.5 percent economic growth in January for the financial year ended March 31. However, a month later, this was revised modestly to 6.6 percent. On May 31, the government will announce the next provisional estimation for the fiscal year ended March 2018. The officers wrote that the multiple revisions were attributed to capturing of firmer data in successive rounds of revisions. The revision was also due to increasing data coverage on a gradual basis.
The key factor is that the officers see a bias when the economic growth cycle turns. In India, the economic growth attracts a lot of political and business attraction. In fact, the data is used as a tool to lure voters during the electioneering. That also leads to mudslinging campaign against the rulers and the opposition. Therefore, the multiple revisions would also confuse the general public as to which way the country is heading.
Three Upward Revisions
The central bank’s research established that substantial upward revisions were seen in the years that coincided with upturns. There was also a big downward revision around the time of 2008 – 09 when the financial crisis struck the entire world. The latest research paper indicated that first time estimates of real GDP had witnessed an upward revision for twelve years with an average 81 basis points.
On the other hand, the real GDP was revised only in two years with an average of 2.04 percentage points. The researchers believe that the advance estimates should be supported with high-frequency indicators to reach a more realistic assessment of the country’s economy.
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