India's Economic Growth In Question? Finance Ministry Defends GDP Data In 10 Points; READ HERE

Amidst concerns raised in regards to India's gross domestic product (GDP) data, the Finance Ministry clapped back by saying that the nominal GDP growth is lower than real GDP growth, this is a new bogey being spread to discredit the GDP numbers. In 10 key pointers, FinMin said the country's GDP data are not seasonally adjusted, and they are also revised multiple times before they are finalised. Further, the ministry reasoned that it is wrong to look at the underlying economic activity based on GDP indicators alone.

In the first quarter of FY24, India's GDP propelled to a four-quarter high of 7.8%, marking the fastest annual pace in a year. Nevertheless, the growth was lower than RBI's expectations of 8% in Q1FY24.

Although India is the fifth largest economy in the world, however, in 2023, it holds the tag of the fastest-growing economy. In percentage terms, after India, the next best growth is seen in other Asian counterparts like Indonesia and China with growth rates of 5% and 4.5%. Experts believe that this position of India is likely to be maintained for several coming years.

However, GDP growth is expected to moderate ahead. At the latest, RBI predicts FY24 GDP growth at 6.5%, while ICRA estimates a 6% growth rate for the fiscal. On the contrary, the IMF increased its estimates for India's GDP growth to 6.1% for FY24. Also, Moody's Investors Services, Morgan Stanley, and Nomura in recent times have raised their forecasts for India's GDP growth.

Moody's eyes 6.7% growth, while Morgan Stanley expects growth at 6.4%. Meanwhile, even though Nomura raised the GDP target for India, however, it sees the growth rate to be below the 6% mark to 5.9% for FY24.

Despite India being a booming economy with 7+ growth in percentage, however, reports have raised questions over its true underlying momentum. Hence, the Finance Ministry on September took to its Twitter, now known as X, to clarify GDP data.

The Finance Ministry defended the country's GDP data in 10 points. These are:

1. India's real GDP growth was 7.8% y/y (year on year) in Q1 FY24 (first Quarter of FY 2023-24). This is as per the Income or Production Approach. As per the expenditure approach, it would have been lower. So, a balancing figure - statistical discrepancy - is added to the expenditure approach estimate. These discrepancies are both positive and negative. Over time, they wash out. In fact, in FY23 and FY22, the 'statistical discrepancy' was negative. In other words, growth as per the Income Approach was lower. Using the expenditure approach, it would have been higher than the 7.2% reported for FY23 and higher than the 9.1% reported for FY22.

2. India consistently uses the Income Side approach for calculating GDP growth for various reasons. It does not switch between the two approaches depending on which one is favourable.

3. As for nominal GDP growth being lower than real GDP growth, this is a new bogey being spread to discredit the GDP numbers and indicate that underlying economic activity is quite weak. Both do not stand up to scrutiny.

4. India's GDP deflator is dominated by the Wholesale Price Index. Wholesale Price Index peaked in the first quarter of 2022-23 due to the oil and food price increases in the wake of the war in Ukraine and supply-side disruptions. Prices began to come down from August 2022 onwards. Hence, WPI is now contracting y/y. It will soon pass once the statistical base effect disappears.

5. If inflation were higher, critics would argue that nominal GDP growth is much higher because of inflation and that there was little underlying activity. MoSPI calculates quarterly GVA in real terms first, and then, using the deflator, nominal values are obtained. No wonder nominal growth rates have slowed, with WPI contracting in recent months. This will normalise in the coming months.

6. So, arguing that nominal GDP growth is more reliable because India has issues with its calculation of GDP deflator is to invent an argument where none exists. This is just to justify the liking for nominal GDP growth because it has been moderating in recent quarters after the high growth in the first fiscal quarter of FY23. In other words, critics want to latch on to anything that does not paint the Indian economy in a good light.

7. Ideally, critics would have done well to look at several other growth indicators to see if other data match their conclusions. Purchasing Managers' Indices indicate that the manufacturing and services sectors are growing. Bank credit growth is in double digits. Consumption is improving, and the government has vigorously ramped up capital expenditure.

8. If anything, India's growth numbers might understate the reality because manufacturing growth indicated by the Index of Industrial Production is far lower than what manufacturing companies are reporting.

9. Indian GDP data are not seasonally adjusted, and they are also revised multiple times before they are finalised three years after the close of the relevant financial year. It is wrong to look at the underlying economic activity based on GDP indicators alone. Higher frequency data must be relied upon to form a view of the strength of the economic activity.

10. Many International agencies have revised up their growth forecast for FY24 after the first quarter data for FY24 was released. They would not have done so if the underlying economic activity was weak.