Finance Ministry Defends Its GDP Growth Estimates

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The Finance Ministry has justified its methodology for GDP calculations, rejecting claims that the economy is slowing down.

The clarification through posts on social media platform X (formerly Twitter) came after an article in the Business Standard by former Chief Economic Adviser Arvind Subramanian and economist Josh Felman cited Central Statistical Office practice of using “single deflation (deflating the nominal value added in each sector by various price indices) rather than the internationally standard technique of double deflation (deflating output by output prices and inputs by input prices)”.

The article also cited slowing nominal growth and exports to suggest that “after a strong recovery from the pandemic, there has been a significant ebbing of dynamism over the last three quarters to more modest levels recently”.

The Finance Ministry said in its response that India’s real GDP growth was 7.8% year-on-year in the first quarter of FY24 based on income or production approach. As per the expenditure approach, it would have been lower, it said. “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.”

India consistently uses the income side approach for calculating GDP growth for various reasons, the ministry said, and does not switch between the two approaches depending on which one is favourable.

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”.

“India’s GDP deflator is dominated by the Wholesale Price Index … [which] 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,” the ministry said. “Prices began to come down from August 2022 onwards. Hence, WPI is now contracting YoY. It will soon pass once the statistical base effect disappears.”

Ideally, critics would have done well to look at other growth indicators to see if the data match their conclusions, the ministry said, citing purchasing managers’ indices and double-digit bank credit growth.

“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,” it said.



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