The IMF’s grading of India’s national accounts has unsettled policymakers and economists alike. A C grade suggests that the methods and data sources used to compute India’s GDP and GVA are questionable, incomplete, or inadequately verified. Since GDP is one of the most important macroeconomic indicators — influencing policymaking, investment decisions, global perception and credit ratings — any compromise in its reliability becomes a matter of serious concern.
According to Profs. Arun Kumar and Pronab Sen, this low rating was not unexpected. Both argue that India’s system of estimating GDP has been fragile for years. But after the disruptions caused by demonetisation, GST implementation, and the COVID-19 pandemic, the cracks have become far more visible.
The Core Problem: Mis-estimating the Unorganised Sector
At the heart of this debate is the unorganised sector, which accounts for nearly 45% of India’s GDP, including agriculture, small manufacturing, informal services, and micro-enterprises. Traditionally, the unorganised sector has been difficult to measure because it lacks formal records, audited balance sheets, or regular filings.
To overcome this challenge, India uses the organised sector as a proxy to estimate the performance of the unorganised sector.
However, this method assumes that the two sectors move in the same direction — an assumption that has repeatedly failed in the last decade.
How This Leads to Major Errors
After demonetisation, the unorganised sector experienced a collapse due to cash shortages.
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After the introduction of GST, millions of small businesses struggled to comply, leading to closures or reduced output.
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During the pandemic, the unorganised sector was hit much harder than the formal sector, but GDP numbers did not fully reflect this divergence.
Prof. Arun Kumar, known for his meticulous study of India’s black economy and structural distortions, has made one of the strongest critiques.
He argues:
India’s actual GDP may be just 48% of the officially reported figure.
This astonishing claim is based on the belief that the unorganised sector has been severely mis-measured, particularly since 2016. He asserts that the productivity and income losses suffered in this sector have not been adequately reflected in official statistics.
He also finds it difficult to accept the 8.2% GDP growth figure reported for Quarter 2 (Q2). According to him, such high growth is statistically inconsistent with the real conditions on the ground — slow job creation, weak private consumption, and stalled MSME recovery.
Prof. Pronab Sen: Inflation Figure Doesn’t Add Up
Prof. Pronab Sen, India’s former Chief Statistician and one of the architects of the modern national accounts system, has also raised doubts — albeit with a more cautious approach.
He questions the 8.2% GDP growth for Q2, especially given that nominal GDP is said to have grown by 8.7%. If these figures are correct, it implies that inflation is only 0.5%, which is highly unlikely.
Even though he agrees that inflation has indeed softened, a mere 0.5% deflator is statistically implausible. This mismatch between nominal growth and real growth creates doubts about whether the price deflators have been accurately applied.
Prof. Sen is not rejecting the GDP number outright, but he warns that the calculation may not reflect the true economic trajectory.
A Larger Crisis: India’s Data Infrastructure Is Crumbling
Both economists point out that the problem lies not just in methodology but also in weakening data infrastructure. Over the last decade, several institutions responsible for economic data collection have been underfunded, understaffed, or politically pressured.
Key issues include:
- Sharp fall in field surveys required to estimate informal sector output
- Delays and cancellations of crucial datasets (example: 2017-18 consumption survey)
- Over-reliance on digitised datasets that exclude informal activities
- Weak updating of base years
- Inadequate revision of proxy indicators
- GDP is not just a number; it influences:
- Government policy
- Interest rates
- Investment flows
- Fiscal planning
- Welfare schemes
- International credibility
- If GDP growth appears high when it is actually low, the government may underestimate unemployment, undercut welfare support, or overestimate tax collections.
- Global investors may allocate capital based on misleading indicators, creating instability later.
- Conducting regular nationwide surveys of informal enterprises
- Strengthening the National Sample Survey Office (NSSO)
- Reducing overdependence on the organised sector as a proxy
- Using technology + field visits instead of technology alone
- Greater autonomy for statistical institutions
- Transparent methodologies for price deflation.
The interviews with Prof. Arun Kumar and Prof. Pronab Sen serve as a sobering reminder that India’s GDP numbers may not fully reflect reality. Whether the actual GDP is 48% of the official figure — as Prof. Kumar believes — or the issue lies in price deflators, as Prof. Sen suggests, one thing is clear:
India urgently needs a transparent, scientifically updated, and reliable statistical system.
The IMF’s C grade is not an insult — it is an opportunity. An opportunity to restore credibility, strengthen policymaking, and build an economy that is measured honestly and accurately.
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