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GDP Truth: No, India didn't do better than US did


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Ever since the numbers were out, a war of words has been raging on social media, particularly Twitter which is abuzz with the hashtag #GDPTruth.

Synopsis

Many on Twitter seemed to have bought into the narrative that India performed better compared to its peers, contracting much less in the June quarter.

The Indian economy contracted nearly a quarter in April-June, shrinking more than expected. After recording the first GDP contraction in more than 40 years, India's Q1 performance is now eliciting different responses from different quarters.

Ever since the numbers were out, a war of words has been raging on social media, particularly Twitter which is abuzz with the hashtag #GDPTruth. One camp says India did better than peers including the US in June quarter, while the other camp rubbishes all such claims.



One particularly misleading number-play was on the forefront — that US GDP contracted 32 per cent, while India only contracted 23.9 per cent in the June quarter.

Many on Twitter seemed to have bought into the narrative that India performed better compared to its peers, contracting much less in the June quarter. While this could not have been farther from the truth, some established media names also fell for the misleading statistics.


There are still articles online that are misrepresenting global GDP statistics. Some of them even feature photoshopped pictures that were doing the rounds on Twitter and WhatsApp. The misleading comparisons even got featured by some bigshot news channels, the videos of which are still up, uncorrected.

All this seems to have irked economic commentator Vivek Kaul enough to write a blog post explaining why this comparison — US GDP contraction of 32 per cent versus India’s 23.9 per cent in the June quarter – is absolutely wrong.


Here's the deal

"Different countries use different approaches when calculating GDP," explains Madan Sabnavis, Chief Economist, CARE Ratings. "We do year-on-year (YoY), while several others do quarter-on-quarter (QoQ). Hence, while we compare Q1FY20 with Q1FY19, other countries may compare Q2 (i.e. April-June) with Q1 (Jan-March) after removing the seasonality factor," he adds.

That’s where the difference lies in how India and the US report GDP growth. In India, GDP growth for a quarter is calculated by comparing to the same quarter the year before, a YoY comparison, which puts India’s GDP contraction at 23.9 per cent for the June quarter.


On the other hand, the US does a QoQ comparison, and then annualises the figure. Meaning: GDP for a quarter is compared to the quarter before it. So they assumed that this quarter's fall would continue at the same rate for the next three quarters, which resulted in an estimated contraction of 32 per cent for the US economy on an annualised basis.

If they had done it QoQ, the comparable figure of contraction for the US economy would be 9.1 per cent, according to a tweet by Gita Gopinath, Chief Economist, IMF.

"These are two completely different measures — they cannot be compared. One compares what happened in this quarter to the previous quarter (the US 32 per cent) and the other compares what happened this quarter to the same quarter in the previous year (US 9 per cent and India 24 per cent),” explains Jayati Ghosh, Professor of Economics, JNU.

Reetika Khera, Professor of Economics, IIT-D, believes that such comparisons are primarily being made to shield the government from criticism for its handling of the pandemic and the lockdown. "Such ostrich behaviour is not going to help us," she adds.

The importance of knowing official data sources and having the ability to verify data independently cannot be understated. "As one may not be familiar with data reporting systems of all the countries, it is better to use the numbers put out by IMF, World Bank, The Economist or CEIC," said R Nagaraj, professor at IGIDR.

Let’s compare... accurately
There is nothing wrong with either approach, data becomes contentious when it is misused, according to Sabnavis. He does not believe this is the right time to be making comparisons either: "Such comparisons would actually not be proper as we all were affected by the pandemic at different times and the lockdown has been lifted at a different pace in all countries."

GDP-Growth

If not for the monkey business, comparing GDP numbers can be quite telling. It may be fruitful to look at countries that have been able to cushion the economic impact better than ourselves to understand how. "People often misuse the numbers, to propagate factually wrong views," said Nagaraj. As the underlying concepts of national income and methods to estimate them are broadly standardised, this is a meaningful process.

According to Ghosh, there is a genuine need to compare economic data in the current political regime. "It is being claimed that what is happening in India is an ‘act of God’ that has afflicted all countries the same. In reality, India has the worst performance among major economies. This is because the policy response of the Modi government was faulty. The lockdown was imposed suddenly, without warning or preparation, was not utilised to address the health issues, and then no social protection was given to those left without livelihoods, which would at least have preserved some demand," she explains.

It's greener on the other side

Most major economies have seen contraction in the April-June quarter of 2020, except China to an extent.

India's economy had expanded by 3.1 per cent in the March quarter and FY20 GDP growth was around 4.2 per cent. Growth was struggling even before the pandemic struck. Even if one were to compare India’s quarter-to-quarter growth with the US, we would still be performing worse, not better.

Sabnavis sees a strong relation of growth to the duration of lockdowns: "The fact is that there is degrowth everywhere depending on how much of a lockdown they have had. Our number is evidently higher due to the two months of complete lockdown which may not have been there elsewhere. Similarly, China has shown growth which may not be the right comparison, as they had degrown when the pandemic hit them, while they are out of it today."

"India is faring much worse than most other economies (even in South Asia) because we had a more brutal (and unnecessary) lockdown without compensatory spending by the government. We also did not manage to control the spread of disease — so the decline is likely to persist even with the unlocking of the economy," said Ghosh.

Indian GDP calculations suffer from inaccuracies because economic activity in the large informal sector is not captured well, especially in the quarterly GDP estimates. Several non-government data sources have suggested that activity in this sector has suffered disproportionately, said Khera.

"Instead of indulging in creative accounting and statistical jugglery, we need to face up to the fact that the consequences of a GDP contraction in India are more dire than in most other countries. Before the pandemic, we were already dealing with high levels of poverty and inequality. The lockdown will increase existing, and high, inequalities," she added


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