MAY 11, 2014

By Naresh Minocha, Our Consulting Editor

"INDIA now world's 3rd largest economy. Does Shri Modi want to say anything?" The Congress Party ran a release/article under this headline on its website on 30th April, a day after the World Bank (WB) released the summary of the findings of 2011 round of International Comparison Programme (ICP) survey.

The release quoted Congress spokesperson Shakeel Ahmed as saying "Now it has been officially declared that we have displaced Japan to occupy the third position. Mr Modi and his team have been doing a lot of false propaganda against UPA's achievements. They should now give a statement on this also."

The release is based on shallow news reports. It has certainly not been prepared after reading the ICP report summary captioned 'Purchasing Power Parities and Real Expenditures of World Economies'. This reminds one of a quote from Thomas B. Macaulay, a British historian & administrator who laid the foundation for modern education system in India.

Macaulay once stated: "Half knowledge is worse than ignorance."

The Congress Party and all other peddlers of the claim that India is the world's 3rd largest economy would have no option but to endorse this wisdom if they care to read ICP summary, whose full report would be released in July. They should also have the humility of reading information about all other global development indicators to arrive at a holistic picture of the country's state of development.

The 81 st page of ICP summary no doubt says that on the criterion of Purchasing Price Parity (PPP)-based gross domestic product (GDP), Indian economy has grown to become the world's 3rd largest from being the 10th largest in 2005, when the previous ICP survey was undertaken.

A table on the same page shows that India's share of world's GDP is 6.4%, which is the 3rd largest after the US and the China. And the news reports and Congress' self-trumpeting are derived from this table. The same table also puts India's share of world GDP at 2.7% on the basis of market exchange rate-based GDP. This makes Indian economy as the eighth largest, a slot shared with Russia. Actually, nine countries are ahead of India as the sixth rank is shared jointly by the UK and Brazil.

What is more important revelation in the table is that India is ranked as the 127th economy on the basis of PPP-driven GDP per capita. So how much humbling is this rank for a sincere Indian who thinks holistically!

It is indeed baffling that no news report quoted this table. It is shocking that the Congress did not care to read the ICP summary, which has lot more to say on the limitations of the Survey. It is really galling that BJP missed an opportunity to utilize the same table as an answer to Congress' poser. More regrettable is the fact the Congress has not uttered a word about WB's another report - 2014 World Development Indicators (WDI) that was released in April. Is it because WDI gives the real (read shocking) picture about the progress that we have achieved? Or, it is because of the Congress is wedded to the belief that ignorance is bliss?

ICP indicates that the share of actual Indian individual consumption expenditure in the world is 2.4% on exchange rate basis and 6.3% on PPP basis.

Why has the Congress not quoted the Indian private consumption as well as Government expenditure and their respective share in the corresponding world parameter to give an insight into the power of the 3rd largest economy?

Before crowing about size of India's economy, Congress should have read the caveat in the ICP summary.

As put by ICP, "PPPs are statistical constructs rather than precise measures. They are point estimates that fall within some margin of error of the unknown true values. The error margins surrounding PPPs depend on the reliability of the expenditure weights and the price data reported by the participating economies as well as the extent to which the goods and services priced reflect the consumption patterns and price levels of each participating economy. The margins of error around PPPs are the result of sampling and non-sampling errors, plus the inherent variability in price and economic structures between economies."

Measurement of the size of economies is focused on computing estimates with too many built-in limitations. It is not about drawing a holistic picture of economy. International institutions adopt one or more of three established methods to measure the size of national economies. The methods are: PPP, market exchange rates (MER) and World Bank Atlas method.

According to WB's '2014 The Little Data Book' India's gross national income (formerly gross national product) in 2012 on basis of Atlas method is USD 1913.12 billion, as compared to PPP-based GNI of USD 4730.3 billion. With Atlas method, India's GNI per capita is USD 1550 as compared to USD 3820/per capita on PPP basis.

The estimates of GDP based on MER and Atlas method are thus a few times lesser than the PPP-based inflated ones.

An obvious inference one can draw from the diversity of estimates is that the glass can be made to appear half empty or brimming with the choice of statistics! Politicians can thus use statistics and their crooked interpretations to run their own short-sighted campaign as evidenced from the sickening babble for Lok Sabha seats.

Economist have time and again discussed the limitations of each of three methods for computation of GDP especially the PPP one.

As put by a senior official of International Monetary Fund (IMF) in article released at imf.org in February 2012, the biggest drawback of PPP is that it is "harder to measure than market-based rates. The ICP is a huge statistical undertaking, and new price comparisons are available only at infrequent intervals. Methodological questions have also been raised about earlier surveys. Between survey dates, the PPP rates must be estimated, which can introduce inaccuracies into the measurement. Also, the ICP does not cover all countries, which means that data for missing countries must be estimated."

According to 2014 WDI, f or operational and analytical purposes the World Bank's main criterion for classifying economies is Atlas method-based gross national income (GNI) per capita. It says: "Because GNI per capita changes over time, the country composition of income groups may change from one edition of World Development Indicators to the next."

Unlike ICP, 2014 WDI gives the real picture about the growth that India has achieved and the very long journey it has to cover to eradicate poverty and to meet basic human needs of the masses.

WDI shows that 41.6% of Indians lived below the extreme poverty line of USD 1.25/day and 75.6% of the Indian lived below the international poverty line of USD 2/day in 2005.

Now WB has used PPP to arrive at the two poverty lines. The Congress/UPA has faith in PPP when it comes to estimation of GDP but does not follow WB's PPP-based definition of poverty line. The Congress thus owes an explanation to the public for taking it for a ride through selective acceptance of WB norms & data to give a distorted picture about India's development.

WDI also shows that the percentage of Indian children below the age of five who suffered from malnutrition was 45. Similarly, the data about under-five mortality rate, maternal mortality rate and other indicators are depressing. These numbers do not gel with India's trumpeted stature as the world's 3rd largest economy.

WDI has put India in the initial rung of middle-income countries, a fact that is incompatible with the country's status as the world's 3rd largest economy on the basis of PPP-based GDP.

One can draw a better and comprehensive picture of Indian economy by looking at several other global indicators instead of living in a make-believe world of India being an economic super-power. The country is a feather-weight player in global trade.

Before flaunting statistics that gives a wrong picture about Indian economy, the Congress should next time pay heed to what late Rajiv Gandhi stated in February 1988 in his famous speech captioned 'Responsive Administration' which is available on the Party's website.

Mr. Gandhi had stated: "As we define development, it is not just a matter of economic growth or statistics. Yes, we will chase you (officials) about the numbers; we will ask for completing various programmes. But you must remember that, in the completion of the programmes, it is the human being who is at the root of the matter. You must not get so carried away by our asking you to deliver numbers that you give us distorted numbers. By 'distortion', I don't mean that you are trying to cheat us or that you are fudging the numbers. By 'distortion', I mean completing the task in a manner that is not meaningful to the human being there. The tasks must be completed, the statistics must be completed in a manner that is meaningful to the human being whose life you are there to improve."

What is the utility of the label that India is the world's third largest economy to teeming millions of poor who do not have access to two square meals, safe drinking water, a bare minimum shelter including toilets?