India has undoubtedly made rapid economic progress in the last ten years. The IMF database shows, it is the fifth largest economy in GDP size (current USD) – significantly up from the 10th position it occupied in 2014. It is also the fastest growing major economy. Given that the first advance estimates (AE1) for FY24 is available, released on January 5, 2024, it is possible to do a decadal comparison – between FY15-FY24 and FY05-FY14.
The picture that emerges is as follows:
Decadal growth significantly down
The average GDP growth in the current decade (FY15-FY24) stands at 5.9% (taking 7.3% growth for FY24 as per the AE1). In comparison, growth averaged 6.8% during the previous decade of FY05-FY14 (2011-12 series, constant prices) – that is, 0.9 percentage points higher. It was on a smaller size of GDP though. While FY14 GDP was $1.7 trillion, by FY23, India’s GDP had already crossed $3.3 trillion (at current USD). But the actual gap is much bigger. Here is why.
Under the 2004-05 GDP series (constant prices), the previous decade’s growth averaged 7.6% – that is, 1.7 percentage point higher. Even this doesn’t give an accurate picture for the following reasons.
One, former CEA Arvind Subramanian believes the 2011-12 GDP series released on January 30, 2015 overestimates growth. This made India surpass China in 2015 to become the fastest growing major economy.
Subramanian (CEA for the period 2014-2018) was the first to red-flag this in 2019, after quitting the office. He used 17 high frequency indicators to demonstrate that the 2011-12 series overestimated growth by 2.5 to 3.7 percent during 2012-2016. He also pointed out that since the underlying GDP data were not available in public (a first in post-independent history) nobody outside the government, not even then CEA, could estimate GDP using the official data.
More recently, in September 2023, Subramanian and Ashoka Mody, another Indian-American economist, argued that the GDP growth was overestimated by 2.5 to 3 percentage points in Q1 of FY24. The AE1 numbers for FY24 say: (a) discrepancies in the GDP estimate is Rs 2.6 lakh crore or 1.5% of the GDP and (b) the GDP inflation at 1.6% (nominal growth of 8.9% minus real growth of 7.3%) is abysmally low compared to the headline CPI inflation estimated at 5.4% (RBI’s projection on December 8, 2023) and actual of 5.8% during April-December 2023 (MoSPI). These two factors (discrepancies and inflation numbers) had provoked Subramanian and Mody to raise the stink in September 2023.
Overestimated growth in the 2011-12 GDP series means the decadal growth during FY15-FY24 is much less than 5.9% – at least by 2.5 percentage points – bringing it down to 3.4%. This would mean the previous decade’s growth was higher by 4.2 percentage points.
Two, the 2011-12 back series data was released almost four years later on November 28, 2018 (not on January 30, 2015 when the rebasing happened) – also an unusual event. In 2015, then chairman of National Statistical Commission (NSC) Pronab Sen revealed (on December 10, 2018) that NITI Aayog vice chairman of the time Arvind Panagariya dismissed the back series data prepared by the Central Statistical Office (CSO).
The second back series data was prepared by a sub-committee of finance ministry think tank NIPFP, which released it on July 15, 2018. This too was dismissed by the NITI Ayog (then under Rajiv Kumar) and the MoSPI for showing two double-digit growths in the previous decade – 10.2% in FY08 and 10.8% in FY11.
The appropriate authority for economic data is the NSC – apex, autonomous body for standard setting, quality control and regulation of all official data. The CSO was the autonomous agency tasked to prepare the GDP numbers. In 2019, the CSO was made “integral part of the main ministry (MoSPI)”; the NSC remains autonomous on paper as the real power has passed on to the MoSPI since 2019.
When the back series was finally released on November 28, 2018, the MoSPI showcased a graph to let the world know that it had lowered the growth of FY06-FY12 by 1.34 percentage points – from average of 8.24% under the 2004-05 series to 6.9% under the 2011-12 series. For the entire decade (FY05-FY14), the growth was lowered by 1.7 percentage points (as noted earlier).
But Subramanian’s desire to independently assess the 2011-12 GDP series was for a different reason.
There were significant changes in the methodology adopted for the 2011-12 GDP series. Most important was the first-time use of MCA-21 database of the Ministry of Corporate Affairs (MCA) to estimate manufacturing and services GVAs (constituting 82% to the total GVA in FY12). The MCA-21 database is self-populated by registered companies and is unaudited and secret (not in public domain); it was untested then. In 2019, the NSSO tested only services industries and found 45% data defective (“out-of-survey/casualty” or inappropriately listed). As of now, this MCA-21 remains unaudited, untested, secret and also beset with technical glitches (as on January 19, 2024) despite a year-long efforts.
It was this flawed MCA-21, which came into existence in 2006 (as revealed by the NIPFP sub-committee), that the back series data couldn’t be tracked back to 1950-51 (the usual practice) by the CSO and the NIPFP sub-committee. But the MoSPI quietly did this (without public announcement) and published the back series data extending from 1950-51 (first noticed in 2021) without revealing how it did this (MCA-21 didn’t exist before 2006).
Three, multiple and routine retrospective revisions in GDP numbers in 2011-12 series have made the numbers unreal, provoking former RBI Governor YV Reddy to comment in 2017: “In India not only the future is uncertain, even the past is uncertain. So, they keep revising the data.”
Nevertheless, another way to map the decadal growth is the decadal jump (from first to tenth fiscal).
Growth jumped by 75.3% from FY14 (inherited growth) to FY24. This was much higher at 93% – from FY04 (inherited growth) to FY14. Both are in the 2011-12 GDP series. If the 2004-05 series is considered, the jump during the previous decade was higher, at 107%.
It may be argued that the current decade saw once-in-100-year pandemic crisis. True, but the GDP growth had sunk to 3.9% in FY20, before the pandemic hit (FY21) – from the peak of 8.3% three years earlier in FY17. Ironically, this high growth of 8.3% came in the fiscal which saw the first of twin shocks, demonetisation of November 2016, which began the derailment as millions of jobs and businesses lost overnight. The previous decade had also seen the 2007-09 Great Recession, plunging growth to 3.1% in FY09 but bounced back to 6.4% in FY14 (both in 2011-12 series, constant prices). The bounce back from the pandemic is good on paper, at 7.3% in FY24 but lacks credibility (as explained earlier).
Average income going down
There is yet another cause of big concern.
Notwithstanding growth in GDP, average Indian remains one of the poorest in the world – lower than those of “low middle income” countries and also the global average. IMF data shows, average Indian income (per capita GDP at current USD) was in the last quarter among 190-odd countries – both in 2014 and 2022.
During the current decade, per capita income (GDP) has grown by average of 4.7% (less than the GDP growth), while it was much higher at 5.2% in the previous decade (2011-12 series, constant prices) and 5.7% (2004-05 series, constant prices). In terms of decadal jump, it is 57.2% now (from FY14 to FY24), while it was 65.4% in the previous decade (from FY04 to FY14) in the 2011-12 series and 73.6% in the 2004-05 series (both at constant prices).
This slowdown in average income is reflected in slowing down consumption (PFCE) or demand in the economy.
The decadal growth in PFCE during FY15-FY24 is 5.9% and falling to 4.4% in FY24 (AE1) – lowest in the past 21 years after FY03 (2.9%), except for the pandemic FY21 (-5.2%). The previous decade saw higher PFCE growth, at 6.1% (2011-12 series) or 7.4% (2004-05 series). That poverty is rising is also reflected in the “free” ration to 67% households or over 813.5 million Indians (141 million left out due to non-updating of data) since April 2020, which continues till December 2029.
So, who actually benefiting from GDP growth?
Quite clearly, those at the top of the economic pyramid (the top 10%, particularly the top 1%) – as Lucas Chancel and Thomas Piketty first flagged in 2017 and 2019 and the ICE360 report of 2021, 2023 and World Inequality Report of 2022 further confirmed it. The same is also reflected in the rise in sale of luxury items (houses, SUVs, smart phones etc. catering to ‘affluent India’ (FMCG) – above those that are affordable for the larger population.
There are other tangible indicators of the skewed growth which needs attention.
(a) Haryana youths are lining up for Israeli jobs, very much like ‘indentured’ labour during the colonial period – despite high risks. Newspapers report their compulsion variously as “better to die while working (in Israel) than to die of hunger without a job” and “if we sit back scared, what will we eat?”. These job camps are organised by the Indian (National Skills Development Corporation) and Israel governments with the Haryana Kaushal Rozgar Nigam Ltd (HKRNL) pitching in. More camps will be set up in Uttar Pradesh and Rajasthan.
A national daily flagged the risks of Israeli jobs: (i) workers are not required to register on the Indian government portals (‘e-migrate’ of the MEA and other such portals of other ministries and agencies and (ii) all the Indian government agencies have disclaimed any responsibility for the welfare, safety and rights of these workers.
(b) Job crisis continues. CMIE data shows in October-December 2023 quarter, joblessness in the age group of 20-24 grew to 44.5% and for 25-29 years at 14.3%.
The official PLFS 2022-23 data shows, 38% of people are working (employment rate or WPR in CWS for all ages) – which means, 72% are sitting idle. In sharp contrast, average employment rate or WPR (CWS, 15-64 years) of OECD countries (mix of developed and developing countries) is 71%. But India’s 38% workers include a significant chunk of unpaid workers (“helper in household enterprise”) which increased from 13.6% of the total workforce in 2017-18 to 18.3% in 2022-23.
This PLFS report also shows that more workers are moving back to low-paying informal agricultural work (48.9% of total workforce), as per the PLFS report. Demand for below-minimum wage menial work under thew MGNREGS galloped to 55 million rural households – or 33% rural households, going by the 2011 Census since there is no sign of 2021 Census yet – in by January 20, 2024 in FY24.
Jobs being the best source of income redistribution, such a state of workers amounts to regressive or reverse of the Lewisian transformation of the economy – which is going backward in quality of jobs and sectors.
Such a skewed growth makes growth unsustainable and hence, the need to redesign the growth model.
NITI Aayog estimate of poverty reduction
In July 2023, the Ayog claimed “135 million have exited multi-dimensional poverty” during 2015-16 and 2019-21. It was based on the health survey data (NFHS-4 of 2015-16 and NHFS-5 of 2019-21), without accounted for two-thirds of MPI parameters – income level and educational deprivation. The NHFS-5 is defective because it averaged data of pre-pandemic 2019 with partly pandemic-impacted 2021.
On top of it, the Aayog released fresh report on January 15, 2024 (Multidimensional Poverty in India since 2005-06: A Discussion Paper) – without fresh data or survey – saying the MPI “found to decline from 29.17% in 2013-14 to 11.28% in 2022-23 with about 24.82 crore (248.2 million) people escaping poverty during this period”. It says: “Owing to lack of data for the years between 2005-06 and 2015-16 and after 2019-21 concerning the incidence of poverty levels, headcount poverty ratios for 2013-14 and 2022-23 have been estimated based on compound growth rate of the reduction in the incidence of poverty levels between 2005-06 and 2015-16 and 2015-16 and 2019-21 respectively.”
Incidentally, there is no poverty estimate after 2004-05 (Tendulkar line) or MPCE after 2011-12. So, there is no way of knowing the level of poverty after 2011-12.