According to a new research paper "India's GDP growth between 2011-12 and 2016-17 was probably bumped up by about 2.5 percent". The study was conducted by Arvind Subramanian who was India's Chief Economic Adviser (CEA) from October 2014 to June 2018. "A variety of evidence -- within India and across countries -- suggests that India's GDP growth has been overstated by about 2.5 percentage points per year in the post-2011 period, with a 95 percent confidence band of 1 percentage point," he said. Why didn't he say all this during his 4 years as CEA? "We raised these doubts frequently within the government, and publicly articulated these in a measured manner in government documents, especially the Economic Survey of July 2017." He thinks that interest rate was too high by 150 basis points. He has been banging on about interest rates since the beginning but the Reserve Bank (RBI) did not agree. Prof V Dahejia thinks that "inflation targeting in the country is a rip-roaring success". Rich people love low interest rates because they can borrow cheaply to buy assets and government loves it because it is the largest borrower. Total government debt is in excess of Rs 82 trillion. The government's debt to GDP ratio is 70%, wrote SA Aiyer, so, "One-third of all central revenue disappears in interest payments." It is very good to promote economic inclusion "via the public provision of essential private goods and services, including toilets, housing, power, cooking gas, bank accounts, emergency medical assistance, and now a basic income for all farmers", wrote Subramanian. 'Sanyas', in which a person gives up all material possessions and survives by begging, is highly respected in India. Should begging be counted in our GDP? There were 4,13,670 beggars in the country last year, according to the government. In 2015, 75,000 beggars had passed high school, some had masters degrees. Subramanian has taken many parameters to calculate how our GDP has been overestimated. Perhaps he could have reached the same conclusion by subtracting the portion of fiscal deficit used to finance welfare schemes. "While the need for stimulating growth is paramount, there is a limit to which fiscal deficit may be stretched," wrote Rangarajan and Srivastava. "In the early 2000s, the household sector's net financial savings were 10-12%. To this, if we add, about 2% of GDP as net foreign capital inflows, 12-14% became the investible surplus. If out of this, 6% was pre-empted by GOI's borrowing, a margin of 6-8% was still available for the private corporate sector and the non-government public sector." Now household savings have dropped to 7% so higher government borrowing means less for private investment. "India has been operating in a 2-4-6-8 macro framework in recent years," wrote N Rajadhyaksha, but it maybe time to deviate from rigid rules. We have been deviating already. That's why the pain.
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