Sales of cars have declined over the past year in India, an indication that growth might be slowing in the country. (Nasir Kachroo/NurPhoto/Getty Images)
July 25

 It was not the kind of news a freshly reelected government likes to hear.

Days after Narendra Modi was sworn in for a second term as India’s prime minister, industry data showed that sales of passenger vehicles experienced their biggest slump in 18 years in May. The next month’s figures were almost as bad, indicating substantial declines in the number of cars sold nationwide compared with a year earlier.

What Is Wrong With India’s GDP Numbers?


Both Forbes in 2014 and the International Monetary Fund in 2015 had forecast that India would outpace China in terms of economic growth. The projection came on the back of India’s robust economic growth, with Gross Domestic Product (GDP) growing over 7 percent per year.

However, demonetization and the hastily implemented Goods and Services Tax (GST) had a negative impact on the economy. Most of India’s small- and medium-sized companies are still struggling from the double blow of demonetization and the GST. Today, India is faced with a flailing economy with unemployment at 6.1 percent — the highest rate in the last four decades — and a serious agrarian crisis. Given these widely visible problems, the government’s claim that the economy was still growing at 7 percent raised serious doubts. Some economists questioned the methodology adopted by the Central Statistical office (CSO) in arriving at the GDP number.

Now India’s former Chief Economic Adviser Arvind Subramanian, in a paper published by Harvard University, has claimed that India’s GDP growth estimates from 2011-12 to 2016-17 were exaggerated by 2.5 percentage points. In the paper, titled “India’s GDP Mis-estimation: Likelihood, Magnitudes, Mechanisms, and Implications,” he laid the blame for the error on the methodology adopted for calculating India’s GDP. According to Subramanian, the actual GDP growth between 2011-12 and 2016-17 was only 4.5 percent, not the 7 percent figure released by the government of India.