There is an ongoing debate that the economic size of the country is not fully reflected in nominal GDP. There are two arguments to support the hypothesis that GDP is understated. One is that informality in the economy is high and part of the economy is not documented, hence that pie is missing from officially reported GDP.

The other thesis is that there is an array of new services coming into the urban centers and old computation techniques based on existing GDP base are not fully reflecting the modernization of economy; hence urban contribution to GDP is undervalued.

The informality argument is not very strong as growth of many informal sectors is based on surveys and government estimations and over the period of time there are evidences that successive governments attempted to overstate numbers is non-crop based agriculture (livestock, forestry etc) and in industrial sector (small scale manufacturing, slaughtering etc). The under invoicing in imports tends to overstate the GDP as the economic size is computed on basis of net trade (exports minus imports). And the low tax to GDP ratio validates that un-documentation is somehow computed in the GDP.

However, the second argument is compelling and the debate has been started by a senior economist (Shahid J Barki) and now the World Bank is helping government to incorporate the new services in GDP; and other forms of proxies to estimate growth.

Census exercise is ongoing and it envelopes economic indicators as well. The Census of Manufacturing Industries (CMI) was last conducted in 2004-05 and currently those numbers are used for various computations; and LSM is estimated based on surveys and many manufacturers tend to understate the numbers or simply do not respond. The new CMI census is likely to be completed by December 2017. And this may resolve the issue of underestimation of LSM.

The GDP rebasing is also happening; last time when the GDP was rebased in 2006 there was no significant jump in the economy size - In FY06, on 2000 base, nominal GDP was Rs7.6 trillion ( $127bn) and on new base the same year GDP was revised up to Rs8.2 trillion ($137bn). The 7 percent jump in GDP in FY06 due to rebasing is much less than what is guesstimated at 25 percent by economists for 2018 rebasing.

The real juice was extracted in 2000 rebasing which was done after two decades; and had included some of the modern services such as telecommunication, broadband etc into the GDP - in FY00, the rebased nominal GDP jumped by 21 percent to Rs3.8 trillion ($74bn) from 1981 based GDP of Rs3.1 trillion ($61bn).

There were many modern services included in 2000 rebasing and few more were added in 2006. Yes, there are whole new arrays of value added services added in the last decade or so; especially in designing, branding and retailing in urban centers. Real estate and construction businesses have become big. The fuel consumption growth is higher than GDP growth suggesting that logistic business is growing at a faster pace. Information technology share has increased; and the list goes on.

BR Research’s hunch is that 25 percent up tick in nominal GDP looks on the higher side; it may hover around 10-15 percent. The question is what are the merits and demerits of a higher nominal GDP. The number should be close to reality for all kind of business and economic analysis and decision making.

The government may have an incentive to inflate the GDP numbers to understate debt, current account and fiscal deficits. With 25 percent upward revision in GDP, the debt to GDP would decline from 69 percent of GDP to 55 percent; and 15 percent jump would lower the ratio to 60 percent.

Dar seems worried about the CAD reaching 3 percent as the deteriorating ratio worsens the country’s rating and in turn hurts its debt generating capacity.

The economy is consumption based, and all the growth is revolving around meeting growing middle class demand. All the growing domestic industries are catering to domestic demand whilst exporting sectors are not performing well. And in the process imports are picking up.

In the absence of exports and remittances, growth in import demand has to be met by FDI and foreign debt; and to generate more of these, Dar is probably keen on overstating GDP. But it would be more of a gimmick than sustainable growth.