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World’s fastest-growing economy may not be so fast after all

India’s statistics may have been painting a far rosier picture of economic growth than the more modest reality of the past decade.

India has held the crown of the world’s fastest-growing major economy until recently, but a new study by former chief economic advisor Arvind Subramanian says the expansion was overestimated between 2011 and 2017. Rather than growing at about 7% a year in that period, growth was about 4.5%, according to the research paper, published by the Centre for International Development at Harvard University.

The overestimation occurred after the previous Congress-led government changed the methodology in calculating gross domestic product in 2012. One of the key adjustments was a shift to financial accounts-based data compiled by the Ministry of Corporate Affairs, from volume-based data previously. This made GDP estimates more sensitive to price changes, in a period of lower oil prices, according to the research paper. Rather than deflate input values by input prices, the new methodology deflated these values by output prices, which could have overstated manufacturing growth.

Krishnamurthy Subramanian, the government’s current chief economic adviser, didn’t immediately respond to requests for comment. A spokesman for the Statistics Ministry also couldn’t immediately respond.

The latest study throws more doubt over India’s economic statistics. A growing number of critics have questioned India’s high growth estimates under Prime Minister Narendra Modi’s government. A delayed jobs report was mired in controversy earlier this year, two statistics officials quit after raising concerns about the data, and a group of 108 economists from around the world questioned whether politicians were trying to influence the figures.

“India must restore the reputational damage suffered to data generation in India across the board, from GDP to employment to government accounts,” Subramanian said. “At the same time, the entire methodology and implementation for GDP estimation must be revisited by an independent task force.”

The most recent data shows India’s growth slowed to a five-year low in the first three months of the year.

© 2019 Bloomberg L.P

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