Modinomics = Falsonomics: Part I

Prime Minister Modi has often claimed that the Indian economy during the past five years of his rule has transformed from one of world’s most fragile economies to the fastest growing economy in the world. Echoing him, the Finance Minister claimed in his 2019 budget speech: “We are the fastest growing major economy in the world with an annual average GDP growth during last five years higher than the growth achieved by any Government since economic reforms began in 1991.”

This claim has an interesting history. For that, let us go back five years.

Government Moves to New Base Year

In January 2015, the government moved to a new base year of 2011–12 from the earlier base year of 2004–05 for national accounts. The government’s Central Statistical Office (CSO) announced that not only was the base year for all calculations being revised, the methodology for calculating the GDP was also being changed.

This somewhat magically allowed the Central Statistics Office (CSO) to up the GDP growth rate by 2 percentage points. This made India—not China—the world’s fastest major economy, and the Narendra Modi government lapped up the accolades. There were rumblings of disbelief as the uptick did not match any other real indicators. Even the government’s chief economic advisor, Arvind Subramanian, admitted that he is puzzled and mystified by the revised estimates based on a new methodology.1 Yet, the CSO released another set of estimates the following year (2016), further upping the growth rate figures for the BJP years.2

Now, there is fundamentally nothing wrong with re-basing the GDP; this is periodically done. But each time the GDP is rebased, the “back series” are also released immediately, going back to at least a decade or more. This time, what was bewildering was that not only did the CSO not publish the GDP growth figures for the years prior to 2011–12, the demand was ignored for three years!3

Finally, in July 2018, the Committee on Real Sector Statistics under the Chairmanship of Dr. Sudipto Mundle set up by the National Statistical Commission (NSC) submitted its report to the NSC in which it presented its estimates of GDP back series based on the new methodology. The report showed that economic growth during the UPA years exceeded the old figures. The series showed that during the UPA regime, growth had exceeded 10% not once, but twice. The average growth rate during the UPA years had been upped from 7.5% in the old series to 8.0 in the new series.4

What most rankled the GOI was that these growth rate figures during the UPA years made the growth during the BJP years lower than the UPA years! The growth rate during the first three years of BJP rule so far had been 7.4%, 8.2% and 7.1%,5 for an average of 7.6%, and not once had the economy exceeded 10% growth rate. As if this was not enough, the economy had been slowing down in 2017–18.6 So, the government promptly labelled the Mundle Committee data as “experimental” and “not official estimates”;7 the report of the NSC Committee was swiftly removed from the website—this was something unprecedented, as the NSC is the apex body regarding statistical matters and is supposed to be autonomous;8 and the CSO burnt the midnight oil to come up with a new GDP back series. On November 28, 2018, the government finally released its new, official, back-series estimates for India’s Gross Domestic Product (GDP). The figures show a lower rate of growth during the UPA years between 2005–06 and 2011–12 than what was estimated using the previous methodology. The data was released by NITI-Aayog vice-chairman Rajiv Kumar— when actually the NITI Aayog has nothing to do with computation of GDP figures, and the data should have been released by the CSO. Clearly, the NITI-Aayog had helped the CSO massage the GDP figures. Former Chief Statistician of India was forthright in his condemnation of the involvement of the NITI-Aayog in the release of the GDP back series: “We have always had a system that data CSO brings out is completely removed from the political interference. Even the Prime Minister would get to know of the numbers just before they are released. Now to do that alongside NITI Aayog, which is a political institution like the (previous) Planning Commission was, is essentially diluting the integrity of the CSO.” He went on to add, ““It’s a clear shift that NITI Aayog got involved in the generation of the new series. One gets the suspicion that it was not done by professional statisticians.”9

And then, wonder of wonders, just a day before the Modi Government released its last budget for the current term, the CSO further bumped up the growth rate data for the years 2016–17 (the year of demonetisation) and 2017–18 (the year of GST) to show that growth for these two years was even higher than earlier projected. The government now claimed that in 2017–18, the GDP grew at 7.2 per cent, 50 basis points higher than the 6.7 per cent estimated earlier; and for 2016–17, the economic growth grew at 8.2 per cent from 7.2 per cent estimated earlier.

The latest and earlier estimates are as below:

i) First, a simple common sense argument. The consensus view is that the economy was already losing steam by the first quarter of FY17 and demonetisation in November 2016 intensified the slow-down. There are various ground reports on the significant pain and job losses in the informal sector. But the new official estimate claims that India grew the fastest since 2011–12 in the year of demonetisation! The growth during this year (that is, 2016–17) at 8.2% is now even higher than the boom year of 2007–8, which now stands downgraded from 9.8% to 7.7%. That is simply unbelievable!

ii) Anyway, let us leave aside this common sense argument. As mentioned above, there is fundamentally nothing wrong with re-basing the GDP. GDP is re-based regularly to account for changing production structure, relative prices and better recording of economic activities. Crucially, the re-basing also allows for introducing newer methodologies and improved databases. Such changes often expand the absolute GDP size because we are able to more accurately capture output. However, rarely, if ever, does the growth rate of GDP (or of its sectors) differ markedly between the new and the old series – implying that the underlying pace of economic expansion has remained the same.11

But what is intriguing with the new series is:

 In the new series first released in 2015, the GDP at factor cost for the base year (2011–12) at current prices is smaller by 2.2% as compared to that in the older series—when, normally, the GDP should expand as normally happens with rebasing as explained above:

  •   Old series: GDP at factor cost in 2011–12 (at current prices) = Rs 83,91,691 crore.

  •   New series (as per National Accounts Statistics of 2015):

    ▪ GDP at factor cost in 2011–12 (at current prices) = Rs 82,06,398 crore.
     As if that was not enough, the revised data released by the CSO in January 2016 further

    lowered the GDP for 2011–12:

     2016 data: GVA at basic prices in the base year 2011–12 (at current prices) = Rs 81,06,656 crore.

     2015 data: GVA at basic prices in base year 2011–12 (at current prices) = Rs 81,95,546 crore.

    [That is: it was now 3.4% lower as compared to the older series (not a very accurate comparison, as we are comparing it to GDP at factor cost of the old series, Rs 83,91,691 crore)!]12


This downward revision in GDP figures for 2011–12 raises India’s growth rates in the following years. Thus, for 2013–14:

  1.   The old series put the annual GDP growth rate at 4.7%.
  2.  This has gone up to 6.6% in the new series.

iii) Even more strange is the fact that for some components of the GDP, that is, for some sectors, even the direction of change is different. For instance, for 2013–14, manufacturing sector growth rate has moved from (–) 0.7% in the old series, to (+) 5.3% in the new series. Such drastic revision of industrial growth rates are difficult to believe, as the revised (higher) estimates were quite at variance with other macroeconomic correlates, such as bank credit growth, or industrial capacity utilisation, or new investment projects launched.

iv) Agricultural growth rates at constant prices were much higher from 2004–05 to 2013–14 than since then. During the five years of the Modi government, agriculture GDP growth was 2.9 per cent on an average, compared to 4.3 per cent during the UPA-II years, and 3.7 per cent for the full 10 years of UPA. This is based on the latest GDP estimates released by the CSO, and is despite the manipulation of GDP data by the Modi Government.13

v) Another intriguing fact is: During the UPA years, when according to the new series GDP growth was lower, the gross investment rate—defined as gross fixed capital formation over GDP—peaked at 35.6% in 2007 and averaged 33.4% during the UPA period (2004–05 to 2013–14). Subsequently, during the four years of Modi-led NDA-II government, when according to the new series growth was higher, the gross investment to GDP ratio declined to a low of 28.5% in 2017 and averaged around 29% during the NDA period (2014–15 to 2017–18).

Economic theory has always held that higher investments lead to higher GDP. So how can GDP grow faster when the investment-to-GDP ratio has fallen?

Technically, the only circumstance in which this can happen is when the economy’s productivity or the ‘Incremental Capital Output Ratio’ (ICOR) improves equally dramatically. Simply put, it means the economy generates a lot more output for the same amount of capital employed. There is no sign of that happening during the Modi government’s four years in which productivity was in fact negatively impacted by the twin shocks of demonetisation and messy GST implementation. Besides this, much of the NDA-II period has also seen the largest quantum ever of unproductive assets locked up in the form of non-performing assets (NPAs). Banks are not lending because of unresolved bad loans. How can productivity surge in such circumstances?15

vi) The figures under the new series don’t match any of the other economic numbers. Thus, even while the UPA-era growth is supposed to be lower according to the new series:

  1.  duringtheUPAyears,non-foodbankcredit(outstanding)grewatacreditablerateof22.8%, while bank credit to industry (outstanding) grew even faster at 23.3%.
  2.  whileundertheNDAyears,non-foodbankcredit(outstanding)rosebyanaverageof8.6%, while bank credit to industry (outstanding) grew at a lowly 1.8%—a clear indication of a slow-down.

vii) Likewise, several other economic numbers also do not match:

During the UPA years, the country’s exports were booming at 20%-plus. But during the BJP years, export growth was zero: India’s total merchandise exports – from industrial to agricultural goods (service exports are excluded in this analysis) – actually fell during the first four years of Modi govt (2014–15 to 2017–18) by (– 0.4%), whereas they had grown by 22.16% during the UPA- I regime, and 12.3% during the UPA-II regime.17

In absolute numbers, exports were only $50 billion in 2002–03, but had risen to $250 billion in 2010–11, and reached $315 billion in 2013–14. They have not recovered to that level even in 2017– 18—when they were $303 billion.


  1.   UPA years: corporate earnings of the top 1,100 companies grew at at over 20%.
  2.   BJP years: corporate earnings of the top 1100 companies grew at about 2% a year.18

viii) Yet more figures comparing UPA with BJP economic performance:

  1.  Corporaterevenuesgrewby18.9percentannuallyandcompanyprofitsby13.2percenton an average per year during 2005–14, compared to just 5.2 per cent for revenues and a decline of 1.8 per cent for profits during 2014–18.
  2.  Capitalexpenditurewasgrowingat20.8percentperyearintheearlierperiod,anditfellto 8.7 per cent later.
  3.  Corporate tax, which was growing at 21.5 per cent, fell to a growth of just 10 per cent, showing a clear slowdown in the economy.
  4.  Plant load factor (PLF, or the ratio of actual energy produced to maximum possible energy that could have been produced) averaged 68.5% from 2004–05 to 2013–14, and until 2011 had never fallen below 74%. By contrast, the PLF from 2014–15 to 2017–18 has been 57%.

 Industrial performance can be judged by vehicle sales. They are a good barometer of GDP growth because they indicate consumption demand. Also, the automotive industry has a long value chain reaching back to primary activity such as mining (basic metals), manufacturing (plastics, leather, forgings, electronics, glass) and forward to the service sector, including areas such as finance, advertising and marketing. The industry also supports a vast number of jobs in repair, maintenance and energy sectors. So, what does the data say? Car sales went up by an average of 13.8 per cent per year in the earlier period, truck sales were up 14.3 per cent annually, while in the 2014–18 period car sales growth had slumped to 1.1 per cent and for trucks to 0.9 per cent. Since the auto and truck sector is central to the health of the economy, with ancillary industries down the line, their dismal performance indicates that the economy is doing poorly all around.19

ix) The roots of the problem probably lie in the methodological changes made to make the new GDP series. For example, data from the Annual Survey of Industries (ASI) was replaced with Ministry of Corporate Sector’s (MCA’s) company financial data (MCA-21) for estimating manufacturing sector growth. (In the older series, the manufacturing sector consisted of two parts: registered (or organised) sector accounting for about two-thirds of manufacturing output, estimated using Annual Survey of Industries (ASI); and unregistered (or unorganised) manufacturing, whose output was estimated using various NSS sample surveys.) It has been shown by several experts that MCA database has several shortcomings, and the advantage claimed by CSO in using MCA over ASI data—that ASI data leaves out non-factory value addition—has also been shown to be false.20 The use of MCA data in place of ASI data is one reason which has led to faster manufacturing sector growth and faster GDP growth in the new series. Several analysts have question this and other changes in the methodology made by the CSO to draw up the new series.21

Economy Slowing Down Again

Despite all these machinations, the slowdown simply won’t go away. The latest GDP growth figures released by the CSO show that the economy is slowing down once again. The GDP growth rate for the first three quarters of 2018–19 was 8%, 7% and 6.3%, wthird quarter—October to December, 2018—was down to 6.6% year-on-year, the slowest in five quarters. Even these estimates are most probably inflated. An article by Devangshu Datta in gives several data available in the public domain that indicate that the economy has slowed more than the official estimates show.22 But then how GDP data has been suitably massaged over the past five years, it shouldn’t be surprising if the CSO bumps up 2018–19 growth rate too!

Real GDP Growth Rate Close to 1 Percent

The government claims that the rate of growth of the economy is around 7%. Even if we leave aside the above debate about how the government has manipulated GDP figures, even then, this growth rate is a huge exaggeration. As has been shown by Arun Kumar, the real growth rate of the economy is not 7% as is being claimed by the government, but is closer to 1%.

The reason for this is that post demonetisation and GST, the unorganised sector has been badly devastated. Thus, a recent survey by the All India Manufacturers’ Organisation revealed that two years after demonetisation and GST, the economy has not yet recovered from its blows. The survey, based on data from 34,700 of the AIMO’s 300,000 member units and conducted in October 2018, showed that the number of jobs in micro and small enterprises had declined by roughly a third since 2014. In medium-scale enterprises, about a quarter of jobs had been lost, and among traders the decline was over 40 percent.23 Data from the Centre for Monitoring Indian Economy, a business- intelligence firm, shows a loss of 11 million jobs in 2017, most of them in the largely unorganised rural economy. But government figures do not take into consideration this devastation, and estimate the GDP contribution of the unorganised sector as if everything was normal.

The government collects data on growth in the unorganised sector once every five years. The last time it did this was in 2015. In the years between successive datasets, official numbers for the

unorganised sector are calculated on the basis of various assumptions. For example, there are projections based on figures from the preceding year, and on data on the organised sector—on the assumptions that old trends persist, and that the organised and unorganised sectors share similar fortunes. These assumptions are valid if the economy does not face a structural break.

Such assumptions do not hold anymore. Demonetisation hurt the organised sector much less than the unorganised sector, since the latter is far more dependent on cash. The GST has also had a disproportionate impact on unorganised enterprises, even though they are exempted from registering for it. GST compliance in the organised sector has forced the digitisation of business transactions, and a preference for organised-sector suppliers. The informal sector has struggled to deal with the reconfigured complexities and priorities, and so lost lucrative contacts with the organised sector. In the wake of these shocks, the organised sector can no longer serve as a proxy for the unorganised sector, and old numbers have no connection to the new reality.

Worse, the official method used to calculate the government’s quarterly growth estimates is based only on data from the corporate sector. These do not even fully represent the organised sector, since the corporate sector is only one part of it. Further, if the organised sector is growing at the expense of the unorganised sector, as seems to be the case, then the former cannot at all represent the latter.

All of this implies that the economy’s rate of growth is nowhere close to what the government claims it is. If we take the official word for this, the organised sector, which accounts for 55 percent of gross domestic product, is growing at 7 percent; and agriculture, which is part of the unorganised sector and accounts for about 14 percent of GDP, is growing at around 3 percent. For the non- agricultural unorganised sector, which accounts for the remaining 31 percent of GDP, the scale of job losses shown in the studies cited above points to a decline of at least 10 percent, even by a conservative estimate. If all this is added up proportionately, the overall rate of growth only comes to around 1 percent. This is the true measure of the growth of the Indian economy, post- demonetisation and post-GST.24

  1. 1  “India’s GDP Numbers are so Dodgy that Even the Central Bank Has Doubts About Them”, February 5, 2016,

  2. 2  “GDP / National Accounts Revised Series with 2011–12 as Base Year”, February 25, 2015,; National Accounts Statistics, 2016,; “Finally, an Economist Explains Why the Indian GDP Growth Number Is Wrong”, March 18, 2016,; Rajesh Kumar Singh, Manoj Kumar, “Methodology Change Sees Indian Economy Grow Faster than China’s”, February 9, 2015,

  3. 3  James Wilson, “Lies, Deceit and Invented Truths in the Modi Regime”, February 10, 2019,; Devangshu Datta, “How Trustworthy is India’s Economic Data? Does the Modi Government Care About it Anymore?” July 31, 2008,

  4. 4  “Report of the Committee on Real Sector Statistics”, July 15, 2018,

  5. 5  National Accounts Statistics, 2016, op. cit.

  6. 6  “India’s GDP Growth Seen Decelerating to 6.5% in 2017–18 from 7.1% in 2016–17”, January 12, 2018,

  7. 7  “Nothing Official About it: Govt Says GDP Back Series Data Experimental”, August 20, 2018,

  8. 8  “Modi Govt: Don’t Quote Report that Showed Higher GDP Growth Under UPA than NDA”, August 21, 2018,

  9. 9  “2 More Members of NSC Quit on Feeling Sidelined”, January 30, 2019,; “NITI Aayog Role in New GDP Figures Questioned”, 29 November 2018,; “NITI Aayog Under Fire for Holding Press Conference on Revised GDP Data”, November 29, 2018,; “Is Economy Growing at 7–8%?”, February 17, 2019,

  10. 10  Press Note on National Accounts Statistics Back-Series (2004–05 to 2011–12), 28 November 2018,; “Simply Put: This Back Series, That Back Series”, November 30, 2018,; Press Note on First Revised Estimates of National Income, Consumption Expenditure, Saving And Capital Formation For 2017–18, January 31, 2019,; Report of the Committee on Real Sector Statistics, 15 July 2018,

  11. 11  R.Nagaraj,“India’sGDPDebate:WhatExplainsReducedGrowthRatesUndertheUPA?”,December2, 2018,; R. Nagaraj, “Why Factory Output Figures are Suspect”, September 17, 2018,

  12. 12  R. Nagaraj, “GDP Conundrum: A Synoptic View”, November 20, 2016 ,; National Accounts Statistics – 2014, 2015 and 2016,; “New Series of National Accounts With a New Base Year : 2011–12”, February 2015,; R. Nagaraj, “Why Factory Output Figures are Suspect”, ibid.

  13. 13  Ashok Gulati, “From Plate to Plough: No Achhe Din for the Farmer”, March 20, 2019,

  14. 14  Data source: Gross Fixed Capital Formation (% of GDP), World Bank,

  15. 15  M.K. Venu, “Why India’s ‘Modi-fied’ GDP Math Lacks Credibility”, November 30, 2018,; Ajay Chibber, “View: There are More Questions than Answers on Back Series GDP Data”, December 6, 2018,

  16. 16  Data taken from: “Sectoral Deployment of Non-Food Gross Bank Credit”, Handbook of Statistics on Indian Economy, Reserve Bank of India,

  17. 17  Manpreet Singh , “Indian Exports Drop Over Modi Period, Trade Deficit Highest Since 2012–13”, June 29, 2018,

  18. 18  M.K.Venu,“WhyIndia’s’Modi-fied’GDPMathLacksCredibility”,op.cit.

  19. 19  Yogi Aggarwal, “Shift in GDP rates is Just Clever Jugglery”, December 11, 2018,; Santosh Mehrotra, “A Self-Goal for India”, December 13, 2018,

    1. 20  R. Nagaraj, “Why Factory Output Figures are Suspect”, op. cit.

    2. 21  See for instance: Ajay Chibber, “View: There are More Questions than Answers on Back Series GDP Data”, op. cit.; R. Nagaraj, “India’s GDP Debate: What Explains Reduced Growth Rates Under the UPA?”, op. cit.; R Nagaraj, “Size and Structure of India’s Private Corporate Sector: Implications for the New GDP Series”, EPW, November 7, 2015,

    3. 22  “Why India’s GDP Growth May Be Even Slower than What the Government Data Shows”, March 15, 2019,

    4. 23  “MSMEs, Traders Witness Loss of 35 Lakh Jobs: Survey”, December 16, 2018,

    5. 24  Arun Kumar, “Unorganised Sector: Falling Fortunes”, Janata Weekly, March 3, 2019,


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