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Higher GDP growth a ‘statistical illusion’, inconsistent with other indicators: P Chidambaram

New Delhi: Senior Congress leader and former Finance Minister P Chidambaram said the new GDP series based on gross value added, which shows a growth of 7-7.5 per cent, is “flawed” as it is based on a “statistical illusion”, and claimed the country is expanding at just 5-5.5 per cent. “GDP estimates are flawed. If you go by simple measurement, the way it is measured, gross value addition at 7-7.5 per cent, appears to be correct, but it is inconsistent with every other economic indicator that we have,” Chidambaram said at an event at the Mumbai University. As per the new GDP reading based on GVA, the economy grew at 7.2 per cent in the first half of the current fiscal.

While the GDP clipped at 7.3 per cent in Q1, in the second quarter ended September it expanded at 7.1 per cent. He said other economic indicators that we should look at include credit growth, which is now at a 20-year low, core sector growth, that is only about 2-2.5 per cent, and investment, which is at an all-time low. “I go by harder numbers – credit growth, investments, stalled projects. Those are hard numbers, real numbers and I think those are the numbers we should look at. Looking at these numbers, my gut feel is that we are growing at about 5- 5.5 per cent a year,” the Rajya Sabha member from Maharashtra said.

He said the GVA number at 7-7.5 per cent may be statistically correct but does not reflect the true growth of the economy. He said this number is constructed by using the deflector, which many people have seriously questioned, and there is a “statistical illusion” in this number. Citing an example, Chidambaram said, “Raghuram Rajan (former RBI Governor) pointed out that exports minus imports adds to GDP. We all know exports in 2015-16 was lower than 2014-15.

“Exports declined but imports declined more. Therefore, exports minus imports in 2014-15 was say number A and exports minus import in 2015-16 is B. Exports declined and imports declined even further but B is larger than A shows growth. Therefore, B upon A shows growth,” said the former Finance Minister. He said there are lot of conundrums in this and hence he does not go by these numbers.