India's clarification on reports of GDP data manipulation; all you need to know

Economists and investors are increasingly showing that they have little or no confidence in India's official economic data after reports that the GDP data is being manipulated, presenting the government with an immediate problem as Lok Sabha elections looming large.

To tackle this, India's PIB has released a press release offering clarification about so-called "out-of-survey enterprises" in the Ministry of Corporate Affairs (MCA) database often used for mining out economic data.

The government says that the sample of 35,456 enterprises utilized for "Technical Report of Services Sector Enterprises in India", which has sparked controversies across the country, comprised of 38.7 per cent out-of-survey units.

The government in the press release states that "of the 38.7 per cent out-of-survey enterprises in the NSSO report, out-of-coverage enterprises comprise 21.4 per cent. The out-of-coverage enterprises are simply those enterprises that are not engaged in activities intended for inclusion in the service sector survey. However, these enterprises are engaged in some economic activity, possibly in the manufacturing sector for instance. As a result, they cannot be classified as out-of-coverage enterprises for the purposes of estimating the GDP of the country."

"In other words, the GDP estimates based on the aforesaid out-of-coverage enterprises are very much a part of the overall GDP of the country."

According to the press release, of the remaining 17.3 per cent out-of-survey enterprises, establishments that are not considered in the MCA database for GDP estimation comprise 0.9 per cent. The balance of 16.4 per cent is either closed or non-traceable enterprises.

The government claims that with the continuous evolution of the MCA database, the proportion of closed and non-traceable enterprises has been falling. Thus the extent of overestimation of GDP in all likelihood is marginal.

The press release also states that "crucially, we must note that the share of total paid up capital of the private corporate sector that is accounted by non-responsive enterprises affects GDP estimates using the MCA database; not the number of non-responsive enterprises in the private corporate sector."

On the allegation of manipulating year-to-year annual growth rates, the government press release states that "even when there is a small over- or under-estimation, the blowing up affects the level of GDP and not the year-to-year annual growth rates materially."

(With inputs from Government press release)