Economists, policymakers spar over India's growth narrative ahead of national election

The state of the Indian economy has left economists debating data and the different conclusions they arrive at to explain the country’s underlying growth story.

Disagreements between economists are commonplace, so much so that famed Irish playwright George Bernard Shaw is said to have remarked that if all economists were laid end to end, they would never reach a conclusion. Unsurprisingly, explaining the state of the Indian economy is no exception.

India has been among the fastest-growing large economies for close to two decades and recently overtook China to take the top spot. And while the days of doubting the official GDP data seem to be behind us, a far more intriguing debate has come to the fore – just how well is India doing?

For some time now, economists and policymakers – former and current – have been engaged in a debate to explain the myriad aspects of India's economy. The debate has attracted some of the biggest names in policy and academic circles. And with the Lok Sabha elections just a year away, the sparring is heating up.

Comments and commentary

Unlike politicians, economists deal in data and facts when making an argument. But they can end up with different conclusions and offer varying explanations even after being presented with the same set of numbers. Outdated data, which economists are often forced to use to assess the current state of play after making subjective assumptions, is a breeding ground for differences of opinion.

On May 1, Surjit Bhalla – formerly a part-time member of the Economic Advisory Council to the Prime Minister (EAC-PM) and executive director for India at the International Monetary Fund – introduced the phrase 'fake commentary' – "a phenomenon more insidious than fake news… fake commentary may be the most important and unchecked form of propaganda masquerading as a 'true' reading of the state of affairs".

According to Bhalla, some of the analyses of the Indian economy by Ashoka Mody of Princeton University and former Reserve Bank of India governor Raghuram Rajan fell in this 'fake commentary' category.

Bhalla's successor at the IMF and former chief economic adviser Krishnamurthy Subramanian lauded the column and posted on Twitter that a list of "fake commentaries w/ SOLID EVIDENCE" should be created.

Asked to comment on the matter, Rajan said the "extent of vitriol spouted against the intentions of those who disagree with the government line has increased."

"This is one with the troll culture. No longer is it that critics are trying to apply a corrective to the propaganda, they are accused of being mal-intentioned, or worse, anti-national. This is, unfortunately, a more general characteristic of the regime we have slipped into," Rajan told Moneycontrol.

According to Mody – whose March 29 article in Project Syndicate invited Bhalla's ire – it would be "kind" to describe the criticism as vitriolic.

Bhalla rejected these assertions.

"They say that 200 million jobs are needed over the next 10 years. I said that is absurd because the population isn't there. What is vitriolic? Why aren't you describing what they write as vitriolic? I have just documented the data," Bhalla told Moneycontrol.

"You can say, 'Listen Surjit, your data is all wrong, here is the alternative data'. I don't want any ad hominem comments. For 30 years I have strictly been writing with data. I've never had an opinion on anything, even cricket, without data," he added.

Data, and what it describes, is indeed at the heart of the matter.

"I know you are interested in telling the story about the fight between Bhalla and others, but this debate is being cast against a background where there are genuine economic problems that are almost insurmountable," Mody said.

Bones of contention

So what are the numbers causing all the ruckus?

Firstly, there is India's GDP growth rate. Data from the statistics ministry will likely show on May 31 that the Indian economy grew by a world-leading – among major economies – 7 percent in 2022-23.

Mody – in his aforementioned Project Syndicate article – and Rajan have taken a dim view of India's growth numbers, arguing that averaging out the growth rate over a period of three years or so to smoothen out the volatility caused by the pandemic and its base effects results in a GDP growth rate of under 4 percent – broadly in line with the 3.9 percent growth posted in 2019-20.

But discussions on India's growth rate are perhaps the most straightforward, given the availability of data. The real tussle is over unemployment and poverty.

An April 2022 paper co-authored by Bhalla argued that India had reduced extreme poverty to as little as 0.8 percent by 2019, sparking what has been called 'The Great Indian Poverty Debate 2.0'.

The debate continues even today, with a review of the same on May 5 by Maitreesh Ghatak of the London School of Economics and Rishabh Kumar of the University of Massachusetts Boston inviting a rebuttal from Bhalla on May 19, who said there is no basis to the assertion that poverty in India had not declined over the past decade. Further, Bhalla's analysis showed the speed with which poverty has declined has been "much faster in the Modi years, than during 2004-13".

If the poverty debate has been caused by the lack of precise data – the last Consumer Expenditure Survey was conducted in 2011-12 and the next one may not be available until 2025 – the discussion on unemployment is led by the source of the data rather than its interpretation.

In one corner is the statistics ministry's Periodic Labour Force Survey, whose latest edition showed urban employment fell to 6.8 percent in January-March – the lowest in at least five years. In the other corner is the Centre for Monitoring Indian Economy (CMIE), whose surveys show the unemployment rate increased to a three-month high of 8.11 percent in April.

CMIE's unemployment data has been criticised for its methodology, with Krishnamurthy Subramanian tweeting excerpts on May 1 from a paper co-authored by him to show its unreliability.

The angst about data and what it represents extends beyond India's borders, with a top government economist unhappy with the "agenda-driven, neo-colonial" rankings of countries by global agencies. Sanjeev Sanyal, a member of the EAC-PM, has been critical of indicators such as the Freedom in the World index. These indices, which rank India in low positions, are not transparent and suffer from methodological issues, according to Sanyal.

Battle over the narrative

With both sides swearing by the data, it is seemingly the other that is trying to frame a narrative.

"It is the story of narratives. Show me in which other country the narrative is so distorted from reality," Bhalla said.

As per Mody, the narrative definitely matters.

"But the narrative that matters is the one that the government and Surjit Bhalla and others propagate," Mody said.

Are political ideologies causing this divide between economists? Again, they both rejected the suggestion.

Bhalla pointed out that he has been critical of the government, calling the recent credit card-tax collection at source episode "bizarre". Mody, meanwhile, cited a review of his new book 'India is Broken' in Frontline magazine, which says his "personal political and economic ideology is not clear from the book".

According to Rajan, it has always been the case that economists employed by the government or looking for government employment emphasise positive aspects of data.

"Equally, and historically, economists outside have tried to balance by focusing on the side the sarkari economists do not," he added.

However, one of the differences now is that there is pressure on economists working for investment banks and other commercial establishments to "adhere to the government narrative".

"So academic economists seem further out on a pessimistic limb," Rajan said.