Part 1 of this five-part series takes a look at the claims of India becoming a US $5 trillion economy within the next five years.
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IN this five-part series, we take a look at the economic situation in the country in early 2024 in the context of the tall claims being made by the Modi government regarding the state of the economy.
In Part 1 of this review, we take a look at the claims being made about India becoming a five trillion dollar economy within the next few years.
In 2019, Prime Minister Narendra Modi famously envisioned that India would become a US $5 trillion economy by 2024–25. Because of the economic collapse of 2020–21, India is now expected to reach this target by 2027–28 or thereabout— according to the Union finance Minister in a speech at the Vibrant Gujarat Summit in Gandhinagar in January this year.
The Prime Minister's yes-men-and-women have been competing with each other in making even grander claims, of India becoming a US $10 trillion and a US $20 trillion economy in the years and decades to come.
NITI Aayog has made a triple jump, and came out with a draft vision document 'Viksit Bharat @ 2047' to make India a US $30 trillion economy by 2047.
Modi's friends too are excitedly chirping in unison. Business tycoon Gautam Adani has come up with this gem, "Following independence, it took us 58 years to get to our first trillion dollars of GDP, 12 years to get to the next trillion and just five years for the third trillion. I anticipate that within the next decade, India will start adding a trillion dollars to its GDP every 18 months. This puts us on track to be a US $25–30 trillion economy by 2050."
“NITI Aayog has made a triple jump, and came out with a draft vision document 'Viksit Bharat @ 2047' to make India a US $30 trillion economy by 2047.
Mukesh Ambani has gone one step further and said that he expects India to become a US $35 trillion economy by 2047.
All these flunkeys are also gung-ho about India being the fifth-largest economy in the world, and becoming the third-largest economy in a few years.
But in an economy with such extreme inequality— India is now among the most unequal countries in the world, with the top 1 percent controlling more wealth than during the British colonial period, while the majority of the population lives on incomes among the lowest in the world— such overall figures have no meaning.
The same International Monetary Fund (IMF), which expects India to become a US $5 trillion economy by 2026–27, also admits that India has the lowest per capita income amongst all large economies.
In per capita terms, the Indian economy is at the 138th position in the world. Being the fifth or the third largest world economy is no consolation to the marginalised.
This limitation of Gross Domestic Product (GDP) data— that it does not reflect how well the ordinary people are doing— is now admitted even by some of the world's leading economists such as Joseph Stiglitz and Amartya Sen.
In a study done for French President Nicolas Sarkozy in 2009, these economists called for the adoption of new tools to measure how well the economy is doing, that incorporate a broader concern for human welfare than just economic growth. But let us for the moment keep this aside and consider the claims made by the Modi government about how well the economy is doing.
In this year's budget speech, the Union finance minister does not make any mention of the country's projected growth rate for the coming year, or the expected growth rate for 2023–24.
The finance ministry has not released any Economic Survey for this year, and instead released a booklet The Indian Economy – A Review that briefly takes stock of the state of the Indian economy, its journey in the last ten years and the outlook for the economy in coming years.
While the earlier Economic Surveys generally adopted a critical approach towards the country's economy, pointing out its shortcomings, this Review is more of a propaganda document, eulogising the Modi government's economic policies of the last 10 years.
Regarding GDP growth, the Review claims that the structural reforms undertaken during the past 10 years of the Modi government "have led to India emerging as the fastest growing economy among G20 economies. In 2023–24, as per current estimates, it is estimated to have grown 7.3 percent on top of the 9.1 percent (FY22) and 7.2 percent (FY23) in the previous two years." Since then, the government has further upped the growth rate for this year to 7.6 percent.
The Modi government's passion for claiming India to be the fastest-growing economy in the world is not new. It began making these claims during its first term itself.
Also read: The K is Indian GDP's reality: Why deny?
However, there are several problems with the Modi government's estimates of GDP and GDP growth rates, which raise questions about the reliability of these figures.
Problem 1: Manipulation of data
The biggest problem with these claims being made by the Modi government is— it has no qualms about manipulating data to suit its political propaganda. For this, it has proactively destroyed India's statistical system, which was once one of the best and most reliable in the developing world.
“Mukesh Ambani has gone one step further and said that he expects India to become a US $35 trillion economy by 2047.
It has curbed the independence of the National Statistical Commission, which was originally envisaged as an independent body of experts which would verify and supervise the collection, collation and dissemination of official data, and made it subservient to its wishes.
It has pressured the Central Statistical Organisation (CSO), the body that collects and disseminates data, which is run and staffed by professional economists and statisticians, to blatantly manipulate official data to glorify the economic record of the Modi government.
This manipulation began right from the time the Modi government came to power in 2014. Let us take a brief look at the Modi government's manipulation of the country's GDP data over the past decade.
Soon after the Modi government assumed power in 2014, the CSO announced that it was changing the base year for all calculations to 2011–12 (from the earlier base year of 2004–05), as well as changing the methodology for calculating the GDP.
This magically upped the GDP growth rate by 2 percentage points, making India the world's fastest-growing major economy. The following year (2016), the CSO released another set of estimates, further upping the growth rate figures for the BJP years.
Now, there is fundamentally nothing wrong with re-basing the GDP; this is periodically done. But this time, there were several reasons for doubting the new data series.
To begin with, whenever the GDP is rebased, the 'back series' is also released immediately, going back to at least a decade or more.
This time, what was bewildering was that the CSO for three years did not publish the GDP growth figures for the years prior to 2011–12. Finally, in July 2018, a committee set up by the National Statistical Commission (NSC) presented its estimates of GDP back series based on the new methodology.
But to the Modi government's dismay, the new back series showed that economic growth during the UPA years exceeded the growth during the BJP years (the new series calculated the average growth rate during the UPA years to be 8.0 percent, while the average growth rate during the three BJP years as per the new series was 7.6 percent).
Despite the NSC being an autonomous body, the Modi government forced the NSC to trash the report, and the government's sycophantic statisticians burnt the midnight oil to come up with a new back series that showed a lower rate of growth during the UPA years as compared to the BJP years. (The new data now lowered the growth rate during the UPA years to 6.7 percent).
The data was released to the press in November 2018 by the Niti Aayog vice-chairman— when actually the Niti Aayog has nothing to do with computation of GDP figures, and the data should have been released by the CSO.
“The same International Monetary Fund (IMF), which expects India to become a US $5 trillion economy by 2026–27, also admits that India has the lowest per capita income amongst all large economies.
Clearly, the Niti Aayog had helped the CSO massage the GDP figures. And then, wonder of wonders, in 2019, just a day before the Modi government released its last budget of its first term, the CSO further bumped up the growth rate data for the year 2016–17 to show that growth for the four BJP years was even higher than earlier projected, at 7.7 percent (see Table 1 and Chart 1).
Table 1: Modi government's manipulation of GDP figures
(GDP at constant prices, 2011–12 base) (percent)
| 2005–06 | 2006–07 | 2007–08 | 2008–09 | 2009–10 | 2010–11 | 2011–12 | 2012–13 | 2013–14 | Average: 2005–06 to 13–14 | ||
| GDP growth rate, July 2018 | UPA Years | 9.6 | 9.7 | 10.2 | 4.2 | 8.8 | 10.8 | 7 | 5.5 | 6.4 | 8 |
| GDP growth rate, November 2018 | 7.9 | 8.1 | 7.7 | 3.1 | 7.9 | 8.5 | 5.2 | 5.5 | 6.4 | 6.7 | |
| 2014–15 | 2015–16 | 2016–17 | 2017–18 | Average: 2014–15 to 17–18 | |||||||
| GDP growth rate, November 2018 | BJP Years | 7.4 | 8.2 | 7.1 | 7.6 | ||||||
| GDP growth rate, 2019 | 7.4 | 8 | 8.2 | 7.2 | 7.7 |
Chart 1: GDP growth rates, constant prices, old and new series
There were rumblings of disbelief about the new figures. All reports from the ground indicated that the hastily announced demonetisation in November 2016 and then the badly designed Goods and Services Tax (GST) in mid-2017 had devastated the economy, especially the informal sector.
But the new official estimates claimed that India had grown at a whopping 8.2 percent in 2016–17, and 7.2 percent in 2017–18 (see Table 1). These figures were simply unbelievable!
“In per capita terms, the Indian economy is at the 138th position in the world. Being the fifth or the third largest world economy is no consolation to the marginalised.
Arvind Subramanian, who was the Modi government's Chief Economic Advisor from 2014 to 2018, let the cat out of the bag after resigning. In a working paper published in June 2019, he admitted that India's GDP was overestimated by 2.5 percentage points per year for the post-2011 period, that is, for the five year period 2012–13 to 2016–17. Instead of the reported average growth of 6.9 percent for these five years, the GDP growth was more likely to be around 4.4 percent.
There is a limit as to how much you can manipulate data. As the economic situation worsened during the Modi years, the CSO was forced to admit that the economy was slowing down: the GDP growth rate slowed down for nine consecutive quarters to touch 3.1 percent for January–March 2020, and for 2019–20 as a whole, the growth rate fell to just 4 percent, an 11-year low (Table 2).
Table 2: GDP growth rate before the pandemic, 2015–16 to 2019–20 (percent)
| 2015–16 | 2016–17 | 2017–18 | 2018–19 | 2019–20 | Average | |
| GDP growth rate | 8 | 8.3 | 6.8 | 6.5 | 4 | 6.7 |
This means that the economy had begun sinking into recession even before the Covid pandemic hit the economy.
After that, the pandemic struck. The Modi government's inept handling of the pandemic led to an unprecedented economic collapse. Official data admitted that the economy contracted by 7.7 percent. India witnessed perhaps the sharpest absolute drop in GDP among the major economies of the world in 2020–21.
With the lifting of the lockdown, the economy began to recover. Once again the Modi government's trumpeters began to proclaim that India's post-pandemic growth rates are the highest among the major economies— the CSO estimates GDP growth to be 9.75 percent in 2021–22, 7 percent in 2022–23 and at 7.6 percent in 2023–24.
Several mainstream economists have questioned the reliability of the latest figures dished out by the CSO. For instance, in September 2023, Ashoka Mody, a professor of economics at Princeton University, wrote an article in a reputed international publication, accusing the Indian government of conducting a "branding and beautification" exercise on its GDP numbers to make them look better in the run-up to the G20 summit.
The CSO had released data showing India's GDP growth rate for the first quarter of 2023–24 to be 7.8 percent. Mody argued that the CSO had calculated India's GDP growth on the basis of output or production data.
However, there was a huge discrepancy between this figure and the GDP measured on the basis of expenditure (Private Final Consumption Expenditure + Gross Fixed Capital Expenditure + Gross Fixed Capital Formation + change in stocks + valuables + imports + exports).
“The Modi government has proactively destroyed India's statistical system, which was once one of the best and most reliable in the developing world.
For the April–June quarter, expenditure had risen by only 1.4 percent. When the discrepancy is negligible, it can be ignored, but when the discrepancy is large, then the international best practice is to take both figures into consideration.
For instance, the Bureau of Economic Analysis (BEA) of the US uses an average of the two. If we use this methodology, then the Q1 2023–24 growth rate falls from the headline 7.8 percent to 4.5 percent.
In early January 2024, the National Statistical Office (NSO) released the First Advanced Statistics of National Income for 2023–24. In that, it projected the Gross Value Added (GVA) growth to be 6.9 percent and GDP growth to be 7.3 percent for 2023–24.
Less than two months later, in end-February 2024, it came out with Second Advance Estimates of National Income, 2023–24. In this data, the NSO revised the GDP growth rate upwards to 7.6 percent, while keeping the GVA growth rate to be the same— which makes the upward revision of GDP dubious.
More recently, the well-known economist and former Chief Statistician of India Pronab Sen has pointed out another important discrepancy in the data released by the NSO, which indicates that the GDP growth rate is overestimated.
According to Sen, private consumption growth numbers correlate very closely with the GDP growth figure. If GDP growth is X percent, then consumption growth can at most be 0.5 to 1 percentage points less than X.
This means if GDP growth is estimated to be 7.6 percent for 2023–24, then consumption growth should be at least 6.6 percent. But official data shows consumption growth to be only about 3 percent (see Table 3).
Sen argues that the only possible conclusion that can be drawn from the fact that the consumption growth rate is less than half of GDP growth is that GDP growth is overestimated.
Table 3: GDP and PFCE, 2022–23 and 2023–24 (₹ crore)
| 2022–23 1st RE (1) | 2023–24 SAE (2) | Growth rate (2 over 1), % | |
| GDP at constant prices | 1,60,71,429 | 1,72,90,281 | 7.6 |
| Private Final Consumption Expenditure | 93,23,825 | 96,05,526 | 3% |
Problem 2: Methodology problems
The second problem with the GDP data relates to the methodology used by the CSO to calculate the GDP— it suffers from a serious infirmity.
The Indian economy consists of two broad sectors: the organised and the unorganised. The organised sector produces about 55 percent of the output, but employs only 6 percent of the workforce; the unorganised sector contributes to 94 percent of the employment and 45 percent of the output of the economy.
“Soon after the Modi government assumed power in 2014, the CSO announced that it was changing the base year for all calculations to 2011–12 (from the earlier base year of 2004–05), as well as changing the methodology for calculating the GDP.
Of this, agriculture contributes around 45 percent of the workforce and 14 percent of the GDP. The data for the organised sector are produced regularly every year, and so its contribution to the GDP can be accurately estimated. Of the unorganised sector, data for only agriculture is available. For the remaining unorganised sector, which has 99 percent of all production units and contributes to 31 percent of the GDP, data is collected only once in five years.
In between these years, the unorganised sector's contribution to the GDP is calculated using the growth of the organised sector. The last such survey was carried out in 2015–16; after that, the Modi government has not carried out any such surveys, and has also scrapped all other surveys that could have given us factual data about the state of the unorganised sector.
Under normal conditions, the data for the organised sector can be used to estimate the contribution of the unorganised sector to the GDP. However, with the economy suffering two shocks in quick succession— first demonetisation and then GST— this assumption was no longer valid.
The unorganised sector declined sharply, while the organised sector did not. A 2018 survey by the All India Manufacturers' Organisation, which represents over three hundred thousand units— including a large number of Micro, Small and Medium Enterprises (MSMEs)— showed that the number of jobs in micro and small enterprises had declined by roughly a third since 2014.
In medium-scale enterprises, about a quarter of jobs had been lost, and among traders the decline was over 40 percent.
A study by the Reserve Bank of India (RBI) too noted that MSMEs have been adversely hit by the GST roll-out and demonetisation. This suggests that during the second half of 2016–17, after the implementation of demonetisation in November 2016, the growth rate of the unorganised sector had fallen to zero, and in 2017–18, after the implementation of GST, it had contracted by at least 10 percent, even by a conservative estimate.
Combining these figures with the official GDP growth rate of 8.2 percent for 2016–17 and 7 percent for 2017–18— both of which represent the growth rate of the organised sector only— the actual growth rate for 2016–17 works out to about 3.7 percent and for 2017–18 only around 1 percent.
With the Modi government taking no steps to revive the crisis-ridden unorganised sector, while the CSO data admit that the economy had slowed down in 2018–19 to 6.5 percent and in 2019–20 to 3.9 percent, the actual growth rate must have been much lower.
“Arvind Subramanian, who was the Modi government's Chief Economic Advisor from 2014 to 2018, let the cat out of the bag after resigning.
And then, in 2020, the Covid epidemic hit the economy. The Modi government's callous handling of the epidemic led to an unprecedented economic collapse, and figures released by the CSO showed an economic contraction of 23.9 percent during the first quarter of the financial year 2021, the worst in recorded history.
But again, this data reflects only the decline of the organised sector. The unorganised sector, whose decline is not captured in the GDP data as discussed above, suffered an even worse collapse, as it was hit the hardest by the brutal lockdown.
Professor Arun Kumar estimates that the unorganised sector probably declined by around 70–80 percent during the first quarter of the financial year 2021. Incorporating this figure into the GDP data, he calculates that the economy probably declined by 47 percent during April–June 2020, and not 23.9 percent.
For the full financial year 2020–21, while the CSO estimates the contraction to be 7 percent, again this only represents the contraction of the organised sector. Factoring in the decline suffered by the unorganised sector, Professor Arun Kumar estimates the contraction to be a whopping 29 percent.
Post-pandemic, the Modi government has been gung-ho about the economy's rate of growth being the highest among the major economies. But several data sets indicate that these figures represent the growth rate of the organised sector only, while the unorganised sector continues to flounder:
This high demand for low-wage MGNREGA work only means that the economic recovery has occurred primarily in sectors and activities which are not employment-intensive; while the employment-intensive petty and small-scale sectors have been left out of the ambit of the recovery.
The reason for this continuing crisis of the unorganised sector is that instead of providing some relief to the unorganised sector to help it recover, the Modi government has used the crisis plaguing this sector to corporatise the economy.
“The organised sector produces about 55 percent of the output, but employs only 6 percent of the workforce; the unorganised sector contributes to 94 percent of the employment and 45 percent of the output of the economy.
This corroborates the views of economist Pronab Sen mentioned earlier, who has argued that the growth rate for 2023–24 is overestimated.
Problem 3: Data deficiencies
This methodological problem in calculating the GDP is compounded by data deficiencies. Even for the organised sector, only limited data is available. For instance, the corporate sector data representing industry is available only for a few hundred firms.
In the case of agriculture, it is assumed that targets set by the ministry are achieved. But that has not been the case in the last few years due to heat or late rains or the inability of perishable crops to come to the market during the lockdown and demonetisation, so that they rotted in the fields and agricultural output declined while the government has assumed that it has increased.
Estimating actual GDP of the Indian economy
We can now make a rough estimate of the actual GDP in 2023–24. We make two estimates: one, based on the GDP growth rates estimated above; and two, after making generous relaxations in these GDP growth rates.
The GDP for 2023–24 then works out to between ₹97 lakh crore and ₹125 lakh crore— the former figure is 56 percent and the latter is 72 percent of the official GDP of ₹173 lakh crore estimated by the Modi government (at constant prices) for 2024.
“Professor Arun Kumar estimates that the unorganised sector probably declined by around 70–80 percent during the first quarter of the financial year 2021.
Assuming that the ratio of GDP at current prices to GDP at constant prices remains the same, this means that the GDP at current prices is between ₹165 and 213 lakh crore (as compared to the nominal GDP of ₹294 lakh crore for 2023–24), implying that our GDP is overestimated by around 30–45 percent (see Chart 2).
Chart 2: Official GDP and Actual GDP Estimates (₹ lakh crore)
This piece first appeared in the Janta Weekly here.