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Begin New Search Topic GDP Political Geography India Content Type Working Paper Publishing Institution The John F. Kennedy School of Government at Harvard University Publication Year within 10 Years

1. India's GDP Mis-estimation: Likelihood, Magnitudes, Mechanisms, and Implications

Author:
Arvind Subramanian
Publication Date:
06-2019
Content Type:
Working Paper
Institution:
The John F. Kennedy School of Government at Harvard University
Abstract:
India changed its data sources and methodology for estimating real gross domestic product (GDP) for the period since 2011-12. This paper shows that this change has led to a significant overestimation of growth. Official estimates place annual average GDP growth between 2011-12 and 2016-17 at about 7 percent. We estimate that actual growth may have been about 4.5 percent with a 95 percent confidence interval of 3.5 - 5.5 percent. The evidence, based on disaggregated data from India and cross-sectional/panel regressions, is robust. Lending further credence to the evidence, part of the overestimation can be related to a key methodological change, which affected the measurement of the formal manufacturing sector. These findings alter our understanding of India’s growth performance after the Global Financial Crisis, from spectacular to solid. Two important policy implications follow: the entire national income accounts estimation should be revisited, harnessing new opportunities created by the Goods and Services Tax to significantly improve it; and restoring growth should be the urgent priority for the new government.
Topic:
GDP, Global Political Economy, Economic Growth, and Global Financial Crisis
Political Geography:
South Asia and India

2. The Best of Rules and Discretion: A Case for Nominal GDP Targeting in India

Author:
Pranjul Bhandari and Jeffrey Frankel
Publication Date:
07-2014
Content Type:
Working Paper
Institution:
The John F. Kennedy School of Government at Harvard University
Abstract:
The recent revival of interest in nominal GDP (NGDP) targeting has come in the context of large advanced economies. We argue that the case for NGDP targeting is even more appealing for mid-sized developing countries, because they tend to be more susceptible to supply shocks and terms of trade shocks. For India, in particular, one major exogenous supply shock is the monsoon rains. NGDP targeting splits the impact of supply shocks automatically between inflation and real GDP growth. In the case of inflation targeting (IT), by contrast, the full impact of an adverse supply shock or terms of trade shock is felt as a loss in real GDP alone. NGDP targeting arguably achieves the best of both worlds: it automatically accommodates supply shocks as most central banks with discretion would do anyway, while retaining the advantage of anchoring expectations as rules are designed to do. We outline a simple theoretical model and derive the conditions under which an NGDP targeting regime would dominate other regimes such as IT for achieving objectives of output and price stability. We go on to estimate for the case of India the main parameters needed to ascertain whether these conditions hold, most notably the slope of the aggregate supply curve. We find that under certain plausible conditions, nominal GDP targeting is indeed better placed than IT, especially in the face of the supply shocks that developing countries tend to experience.
Topic:
Development, Emerging Markets, Monetary Policy, GDP, Inflation, and Central Bank
Political Geography:
South Asia and India