India’s reputation for its quality of statistics has suffered yet another blow as questions are now being raised over a key database called MCA-21, introduced for calculating the country’s gross domestic product.
In a study conducted by the National Sample Survey Office in the 12 months ended June 2017, it was found that up to 36% of companies that are part of the MCA-21 database and that were included in India’s GDP calculations could not be traced or were wrongly classified, Mint newspaper reports.
As a result, two detailed reports based on the survey had to be junked. For GDP calculation the Ministry of Corporate Affairs had even included firms that had reported their financial data only once in three years as “active companies.”
According to the current methodology, if a company does not report its financial data in a particular year, the Central Statistics Office relies on a “blow-up” technique that uses the paid-up capital at the time of setting up of the company as the basis for computation of gross value added by that company. This leads to an overestimation of economic activity as it does not reflect actual production of goods and services and also takes into account fake firms, the daily added.
Statisticians have raised doubts over the use of an untested database in India’s national accounts. It also raises troubling questions about the decline of the Central Statistics Office, which was once a globally renowned institution.
However, the government has claimed that the presence of ghost companies in the government database has no impact on economic data and a recent study was undertaken to understand the data gaps and take remedial steps.
This erosion of credibility in the government’s economic data comes at a time when economists have raised concerns about the politicization of economic and job data, and it could even affect investor confidence in India.
Kaushik Basu, professor of economics at Cornell University and former chief economist of the World Bank, has tweeted, “India had a global reputation for the quality of its statistics. It is unfortunate to see this damaged. On the plus side, this can explain why India’s GDP numbers were not matching with its poor record of job creation.”
Last month International Monetary Fund chief economist Gita Gopinath raised doubts over the veracity of India’s GDP numbers and called for greater transparency in its statistics. Gopinath said there were some issues with the way India was calculating its growth rate and the IMF was paying close attention to the new numbers.
Also read: India’s GDP numbers have some issues: IMF
Earlier in March a group of 108 economists and social scientists from various institutions in India and abroad decried the Narendra Modi government’s tweaking of yardsticks used to calculate GDP and complained of a practice of withholding unpleasant data. The group called for an end to political interference in influencing such data and restoration of “institutional independence” and integrity to the statistical organization.
Former Reserve Bank of India Governor Raghuram Rajan had called for the appointment of an impartial body to review the GDP data. He had expressed doubts that the Indian economy was really growing at 7% per annum, claiming that not enough jobs were being created.
Also read: Ex-RBI chief wants GDP data reviewed
In February, there was a controversy about the latest unemployment report produced by the National Sample Survey Office, which claimed that the country’s jobless rate reached a 45-year high in the 2017-18 fiscal year.
Also read: India’s jobs data leaves Modi govt red-faced
Interestingly, the report was to have been released in December 2018 but was kept under wraps. Two NSSO officials, acting chairman P C Mohanan and member J V Meenakshi, stepped down, citing delays in releasing the report. The data came to light only after Business Standard daily published the leaked findings of the report.
Tax collection hit
On the other hand in a sign of a weakening economy, the country’s direct tax collection for the year 2018-19 fell short of the target by Rs 620 billion (US$8.86 billion) at Rs 11.18 trillion ($160 billion) with lower corporate tax collections emerging as one of the reasons. In addition, lower profits of micro, small and medium enterprises also had a negative impact on tax collections.
The government had set a target of Rs 12 trillion ($ 171.3 billion). Total tax collection numbers indicate that it got 13.4% more than in the previous fiscal year, but fell short of the revised target of 18%.