Indian Statistics And The Black Economy

Chinese statistics and data on the economy are unreliable because the communist party ensures that reported numbers are to their liking. Indian statistics and data are unreliable because gathering data in India is a nightmare.

At various times during 2011 India reported export growth figures that exceeded 50% (80% in some cases). Subsequently, the data was revised and the government admitted to miscalculating data. Indian media worked itself into a frenzy in October 2011 over reports that India's exports to Bahamas shot up from $2.2 million (with an M) in 2009 to $2.2 billion (with a B) in 2010. The Bhamas' global imports according to UNCTAD was only $2.8 billion in 2010.

Many economic vigilantes brandished that India's GDP growth was overstated by 1% due to the miscalculated export data.
India has a vibrant unreported, underground economy that Indians refer to as the black economy. Cash generated through unreported transactions is called black money in India.

Recently, a friend pointed out to me that the implementation of Value Added Tax (VAT) as a replacement for sales tax lead to a boom in tax collections for many states and to a decline in mis-reporting.

It is easily fathomable that a big percentage of the recent GDP "growth" in India probably came from the conversion of parts of the black economy into the reported white economy. It is also fathomable that a big part of the growth in unorganized parts of India (read rural India) is not being captured by official statistics.

The digitization of records and transactions is making life extremely difficult for people operating in the black economy. As the Goods and Services Tax is implemented, more of the black economy will get reported and Indian GDP will get a big boost.

Based on the above, what is the relevance of GDP numbers? The real sense of how an economy is doing can always be gathered only from interactions on the ground. The performace and results of well run companies are a far better indicator of the health of an economy.