Why It Is Important To Get The GDP Dynamics Right

We have pointed out, here and here, that the standard narrative about 2016-17 Indian GDP, that its growth was unchanged in Q3 but fell in Q4, is based on a misreading of the data. An application of a standard seasonal adjustment method to the raw figures shows that GDP growth actually declined in Q3 and recovered weakly in Q4.

One could ask the question, does this even matter? The bottom line is to observe that GDP growth in 2016-17 was about 7%, the trend rate for the last decade. Or, you could observe that there was a perceptible slowing in the second half of 2016-17. Why split hairs about differences between Q3 and Q4 and apparently esoteric statistical procedures when the conclusion is entirely clear?

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Apparent Slowdown in Q4 India GDP Is Misreading of Data

It has been widely reported that the latest data release showed a sharp slowdown in Indian GDP growth. Our analysis indicates that this is a misreading of the data, caused by the curious Indian practice of using four-quarter growth rates rather than seasonally adjusted data. After we seasonally adjust the data, we find that Q4 GDP actually rebounded, but rather weakly, and the headline slowdown in YoY Q4 growth is actually the result of the sharp Q3 decline followed by a weak Q4 rebound.

The Central Statistical Office released GDP figures for the Q4 of the last financial year on Wednesday. Although the full year economic growth came in at 7.1%, exactly what was estimated earlier, the Q4 data has been interpreted by many in the press as showing a sharp slowdown. For instance, Business Standard reports a “hard fall”,  and warns that “Q4 GDP data point to serious slowdown”.  Times of India has reported the same story. The Mint reports that

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The Note Ban Interim Report Card

A very thought provoking article in the Times Of India claims that events so far have proved the opponents of the note ban entirely wrong. Our own analysis suggests that the jury is still out on this, and we will need to wait until 2018 and maybe even longer, before we can pronounce a verdict on how the note ban has turned out.

The article was written by a “Columbia team”, led by the great Jagdish Bhagwati, University Professor at Columbia, along with two alums, Vivek Dehejia and Praveen Krishna (BDK from here on). These scholars, along with my old friend Suresh Sundaresan of the Columbia Business School, have been at the forefront of people who have defended the note ban from its many critics. However, I will attempt here to rise above my institutional loyalties and judge these claims in a factual way.

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Gangasrotagati, Kurmagati and Mandeikagati

It often seems as if Prime Minister Modi thinks and lives gangasrotogati, among followers and opponents who only think and live kurmagati or at best mandeikagati.  

An example of this can be seen in the reaction to the results of the recent elections. While many of his followers were reveling in short-term triumphalism, and some of his opponents gave in to an equally myopic despondency, Mr. Modi appeared to draw the right conclusion, that the results revealed a gaping vulnerability for the BJP, and he moved decisively to address it.

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India’s Economic Divergence Problem

In a very innovative study carried out at the IDFC Institute, Praveen Chakravarty and Vivek Dehejia have found that there is significant economic divergence not only among Indian states, but also among regions inside states. This suggests that this divergence is caused not by variations in the quality of governance, but by agglomeration effects arising out of scale economies. A briefing report is available here, and a summary of their findings is available in a newspaper article.

The same researchers had determined in a previous study that there was considerable divergence among Gross State Domestic Products among the 12 largest states of India in the 1991-2015 period. They write

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BJP’s Decision To Field No Muslim Candidates: A Statistical Analysis

The decision of the BJP not to field any Muslim candidate in the recent Uttar Pradesh election has been criticised by some as biased and “communal”, and hailed by others as a courageous rejection of identity politics in favour of merit based selection. We carry out a statistical test to discriminate between these two hypotheses.

The BJP fought the 2017 Uttar Pradesh assembly elections as part of the National Democratic Alliance, putting up candidates in 384 seats, while the Apna Dal (Sonelal) contested 12 seats, and the Suheldev Bharatiya Samaj Party contested the remaining 7 seats. Below we consider the candidate selection process for the BJP alone, rather than the entire NDA coalition.

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What Has Harvard Ever Done For Us?

Social media in India seems to be full of people who feel that Harvard University in Cambridge, Mass. is full of empty suits and emptier heads who have never contributed anything but fancy words to the welfare of humankind. Since much of this ire is probably directed at Harvard Business School, it would be important to point out that Harvard is not just a trade school, but they also teach and carry on research in the pure sciences and in applied sciences and engineering. It also has a fairly well known Medical School.

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Society Needs Diversity, But Too Much Of It Can Hurt

Recent research suggests that economies perform best when their social diversity is in an intermediate range, not so high as to undermine social trust and cohesion, and not so low as to inhibit innovation and complementarity of skills.

Although this effect has been known for some time, a new confirmation of it has come from studies of genetic diversity within human populations and its relationship to economic development.

Recent quantitative studies in human population genetics have shown that human genetic evolution did not stop in prehistory, but has continued at a rapid pace throughout history. For instance, in a study published in the Proceedings of the National Academy of Sciences of the USA, John Hawkes of the University of Wisconsin and others concluded, based on the 3.9 million HapMap SNP dataset, that human adaptive evolution has not only continued, but has actually accelerated in the last 40,000 years.

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Weekend Reading: Oxytocin, Trust, and Ethnocentrism

The role of the chemical oxytocin in promoting social trust has been highlighted in many popular books and articles. Recent research suggests however that oxytocin also has a “dark” side. Its effect is not only to promote trust and cooperation among in-group members but also to engender betrayal and derogation towards out-group individuals. The two effects seem to be inextricably intertwined and depend on each other. This finding, that the mechanism of trust requires the exclusion of an other, is very important for understanding the current global political climate.

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