Raghuram Rajan continues to raise doubts about the new GDP data series

The new GDP data series from the CSO has not won acceptability from many. First to raise objection to the eye brow raising estimate was the Chief Economic Adviser- Arvind Subramanian.  The ex- Senior Fellow at Peterson Institute has described the 2013-14 figures under the new estimate as ‘puzzling’ (Economic Survey).  As per the new series, GDP growth rate was 6.9 % for the year, whereas it was 4.7 per cent according to the old series.

The stark difference between the old and the new data has made the new one unusable for many policy makers and institutions unusable for modeling.

RBI Governor Raghuram Rajan has made his reservations about the new series many times. The latest, on Wednesday under the monetary policy document, he raised doubts while using the new data in monetary policy formulations.  

After certifying that the new series has an improved methodology, Dr Rajan raises serious criticism against the data derived: “Yet these data cloud an accurate assessment of the state of the business cycle and the appropriate monetary policy stance; particularly, they render forecasting tenuous. Projections based on the new series are also handicapped by the lack of sufficient history in terms of backdated data amenable to modeling.”

He went on to comment that the series is erroneous in exaggerating the manufacturing data. “The divergence between the new series and the old series in the pace of growth of the manufacturing sector has turned out to be stark; in particular, the robust expansion of manufacturing portrayed in the new series is not validated by subdued corporate sector performance in Q3 and still weak industrial production.”

The RBI need accurate historical data to estimate the output gap which is very critical in designing monetary policy measures. Given the continuous criticism it is up to the CSO to correct the data as well as to regain its credibility. 

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