Thread by @JustinSandefur

If India stopped growing, would the IMF and World Bank say so?
cgdev.org/blog/if-india-…

My latest for @CGDev with @duggan_julian

<THREAD>

@CGDev @duggan_julian As of last year, India was (by official numbers) the fastest growing major economy in the world.

But the wheels have come off. Sales of everything from cars to toothpaste and underwear are grinding to a halt.
nytimes.com/2019/09/21/bus…

2/

Looking at monthly numbers for the first half of this fiscal year (Apr-Sep 2019), we find:

🔻Non-oil imports: -6.6%
🔻Non-oil exports: -1.6%
🔻Production of K goods: -3.5%
🔺Industrial production: +2.5%
🔺GST receipts: +1.6%

Yet the IMF and WB growth projections: +6.1%

3/

Note the change. 2018 was a good year across indicators, so 7% official growth was nestled mid-range of other leading indicators. For 2019, a 20pp decline in import growth and much weaker performance across all indicators are coupled with a projection of robust 6.1% growth.

4/

So why are IMF-WB forecasts so optimistic in the face of so much doom and gloom in the Indian economy?

One simple explanation: official GDP growth rates may be mis-measured.

5/

In June, @arvindsubraman (former CEA to Gov of India, and our former CGD colleague) made a big splash in Delhi with a working paper suggesting official GDP had been inadvertently exaggerated since 2011-12.

See here:
hks.harvard.edu/centers/cid/pu…
and here:
hks.harvard.edu/centers/cid/pu…

6/

@arvindsubraman AS pinpoints a methodological change with the deflators in 2012 that can explain some of the problem. But the basic issue is summarized in this graph: since that methodological change, GDP growth has become unmoored from all other economic indicators.

7/

@arvindsubraman If the GDP figures *aren't* mis-measured -- despite doubts from various quarters -- this points to a huge underlying structural change in the Indian economy that requires a fairly deep explanation.

8/

@arvindsubraman But if the GDP figures *are* mis-measured, shouldn't the IMF-WB forecasts serve as an independent fact check?

It seems not.

9/

@arvindsubraman Rather than providing an independent assessment, any errors in official figures are baked into the IMF-WB forecasts -- which take gov't figures at face value, and (in the IMF's case) adjust for staff's subjective assessment of recent policy changes.

10/

@arvindsubraman The Bretton Woods institutions should do better. Reality suggests Indian growth may barely be in positive territory, yet the IMF and World Bank appear too timid to tell the emperor he has no clothes -- not to mention cars, toothpaste, or underwear.

/END

P.S. Empirical claims should be replicable, even in a blog post. So here's a dropbox link containing all the original data sets and code to reproduce the graph above and the various figures we cite.
dropbox.com/sh/t9anfdjtzla…