Cold Comfort over GDP

Arshad Shaikh examines the recent claim by the government that India has made a V-shaped recovery in terms of GDP growth and looks closely at the GDP and GDP growth numbers to understand how they can be misused to obfuscate data and create a chimera of prosperity.

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Arshad Shaikh

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Arshad Shaikh examines the recent claim by the government that India has made a V-shaped recovery in terms of GDP growth and looks closely at the GDP and GDP growth numbers to understand how they can be misused to obfuscate data and create a chimera of prosperity.

Once the Prophet Muhammad ﷺ was passing through a market. He saw a man selling grains. He put his hand into the sack of grains and found that the man had kept the wet grain (inferior quality) deep inside the sack, whereas the good grain was displayed on top. The Prophet ﷺ expressed his displeasure over this practice and said: “He who deceives has nothing to do with us” (does not belong to our community) – (Sunan Abu Dawood Hadith # 3452).

This act of deception is not something that is confined to the marketplace. Many a time, governments and rulers too deploy this policy to hide their failures and create an illusion of “all is well”. When it comes to the government furnishing data related to the economy, a popular phrase comes to mind – “There are three kinds of lies: lies, damned lies, and statistics”. Recently, the GDP figures of the first quarter (Q1) of the current fiscal (Apr May Jun 2021-22) came out and there was a lot of euphoria and virtual backslapping among the establishment. Since India achieved a GDP growth rate of 20.1%, the government promptly announced its year-on-year (YoY) comparison with the Q1 growth rate of minus 24.4% last fiscal i.e. (Apr May Jun 2020-21).

The Twitter handle of the Ministry of Finance (@FinMinIndia) immediately fired a tweet saying “Q1:2021-22 data reaffirms Government’s prediction of an imminent V-shaped recovery made last year at this time. Increase of 20.1% in GDP – despite the intense second wave in the months of April-May – highlights the continued economic recovery.”

Crying foul, critics jumped into the fray pointing out that the government should have looked at the quarter over quarter (QoQ) growth i.e. comparing the Q1 of the current fiscal with the preceding quarter (Q4) of the last fiscal, which would have shown that the economy had indeed contracted by around 17%. So, what exactly is our GDP growth story and how do the actual numbers and its presentation matter to the political economy? Being economical with the truth is neither good governance nor good journalism.



Data fudging is a technical term to describe how numbers are invented to fit the curve or the trend line and is done in a way that is difficult to catch. Data fudging also includes presenting more confusing data than inaccurate data to avoid greater scrutiny. Let us take an example. This is basic statistics. Mean is the average or total divided by the number of observations while median is the middle score for a set of data arranged in order of magnitude.

Supposing there is a factory with 10 workers with the following salaries – Rs 15k, 18k, 16k, 14k, 15k, 15k, 12k, 17k, 90k and 95k. The mean or the average salary works out to Rs 30.7k. However, this is not a true reflection of the typical salary of a worker as the total has been skewed by the presence of two large salaries 90k and 95k.

Another measure called median is a better parameter to reflect the typical salary of a worker. In our case the median salary of the worker is Rs 15k, which is a more realistic exposition of the typical salary of a worker in that factory. What we learn from this simple exercise is that the presentation of the data is equally if not more important than the data itself and the manner in which the numbers are presented can change the perception about the entire story the numbers convey.



“Gross Domestic Product (GDP) is the monetary value of all finished goods and services made within a country during a specific period. GDP can be calculated in three ways, using expenditures, production, or incomes. It can be adjusted for inflation and population to provide deeper insights. The GDP growth rate compares the year-over-year (or quarterly) change in a country’s economic output to measure how fast an economy is growing. Usually expressed as a percentage rate, this measure is popular for economic policy-makers because GDP growth is thought to be closely connected to key policy targets such as inflation and unemployment rates.” (Investopedia) Let us look at the Table showing GDP (INR lakh-crores) and GDP growth of India.














% GDP growth


Total GDP % GDP growth


Total GDP % GDP growth


Total GDP % GDP growth


Total GDP
2019-20 5.24 50.04 4.42 49.42 4.08 51.82 3.09 52.20
2020-21 -24.4 38.88 -7.4 47.26 0.4 54.54 1.6 56.75
2021-22 20.1 51.22


From the Table it is very apparent that the GDP reduced from INR 52 lakh crore to INR 32 lakh crore between Q4-19-20 and Q1-20-21. We saw the pandemic-triggered lockdown in the months of April, May and June in 2020 where economic activity was subdued. Obviously, the GDP for a similar period in 2021 should be much more as there was no lockdown despite a raging second wave.

A better way to look at the GDP numbers would be to examine the total GDP just preceding it (Q4 of 20-21) or a similar period where there was no pandemic (Q1 of 19-20). Looking at the numbers, we see a dip in GDP in the former (56.75 > 51.22) and a very nominal increase in the latter (51.22 > 50.04). Looking at YoY figures of Q1 and then proclaiming a V-shaped economic recovery is wishful thinking at best and chicanery at worst.



Ailing economies require remedial measures. Those measures are determined by the analysis of the problem at hand, just as a doctor draws up a prognosis after collecting the relevant information about a suspected disease or medical condition. If an economy, as in the case of India, requires a heavy dose of government spending to boost employment (through massive infrastructure projects) and generate consumer demand through direct money transfers; then the government will definitely not do so if it has drawn the wrong conclusion (by its reading of GDP data) of a V-shaped economic recovery.

Some experts blame the regulators and rating agencies for the 2008 global financial crisis. These experts of monitoring and interpreting complex financial date did not read the data correctly or chose to ignore the warning signs the data was emitting. “The Giant Pool of Money” is an episode of the radio show ‘This American Life’ that originally aired on May 9, 2008. The episode described to a general audience the causes and factors, which led to the subprime mortgage crisis.

It said: “Credit rating agencies came under scrutiny following the mortgage crisis for giving investment-grade, “money safe” ratings to securitised mortgages (in the form of securities known as mortgage-backed securities (MBS) and collateralised debt obligations (CDO)) based on “non-prime” (subprime or Alt-A) mortgages loans. These high ratings encouraged the flow of global investor funds into these securities funding the housing bubble in the US”.

Some have even gone further and said that it was more a failure of the regulators rather than the existing regulation. The people sitting in those positions did a shoddy job and chose monetary benefit over moral responsibility. So finally, it boils down to the simple adage that ‘when money is lost, nothing is lost but when character is lost, everything is lost’.