Arvind Subramanian’s suspicions about India’s GDP recovery are hard to agree

Dr Arvind Subramanian, former Chief Economic Advisor (CEA) at the Ministry of Finance, warned in a recent talk he gave at the Indira Gandhi Institute for Development Research (IGIDR) in Mumbai, Against the over-optimism about the economic recovery on the grounds that India’s national income accounts rest on fragile legs and, even on their basis, the economy has barely recovered to the level of before the pandemic. To his credit, he said that robust fiscal growth is an optimistic indicator of possible economic strength.

The Ministry of Economic Affairs has a page that does what, the drop-down menu of which is, perhaps, unintentionally revealing as to the government’s institutional consideration for economic advice: on this, the CEA sneaks between Carpenter and Computer and Printer. This perhaps explains some of the great discrepancies between the wise wisdom of pre-budget economic studies, prepared by scholarly CEAs, and the actual policies announced in the budget. In any case, Subramanian’s skepticism about the strength of the current economic recovery deserves our skepticism.

Whatever the merits of Dr Subramanian’s dissatisfaction with the new GDP data set, with the 2011-12 base, these would have no bearing on the most recent trends in the GDP. Indian economy. With old and new methodologies for calculating national income, nominal GDP growth rates were consistent. Differences in the measures of inflation used to deflate nominal data to obtain real data have led to different estimates of real growth. It is therefore possible to overstate how misleading the new GDP series is, even without resolving the intricacies of the methodological dispute.

Anticipated tax collections have increased by 90% so far during the year. For several months, GST collections have been consistently high, above ??1.25 trillion. Tractor sales in October 2021 were higher than in October 2019, showing a resilient rural economy. However, auto sales have yet to catch up due to a shortage of semiconductor chips. Demand for work under the Rural Employment Guarantee program declined in November compared to a year ago, indicating an increase in real economic activity, requiring less use of an allowance. Exports were robust, imports even more so, with imports of capital goods showing double-digit growth in October compared to October 2019 level. Consumption recorded robust growth in October / November over the corresponding months 2019, ”observed the Monetary Policy Committee at its December meeting. These indicators compensate for the slowdown in growth in the basic sector, whose growth fell to 3.1% in November, against 7.5% the previous month.

Today, Dr Subramanian places great importance on high frequency indicators to assert his overestimated GDP. However, the same high-frequency data now suggests a robust recovery.

Global growth is on the rise, the basis for a correction in key rates and the start of the withdrawal of quantitative easing in the rich world. So, a growing global economy is also good news for India’s growth story.

Overall, the Indian economy is expected to return to normal growth, which would be aided by proactive measures to stimulate investment, including increasing public spending and accelerating the rate of build-up of active market elements. the corporate debt that India needs. Even if the banking sector is now better capitalized than in the past, the bulk of new infrastructure investments should be financed less by bank loans than by the issuance of corporate bonds with some credit enhancement of the share of the state. The planned giant investments in green hydrogen and other renewable energies bode well for sustained investment growth.

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