India’s nominal GDP slowed to 8.0% in Q1 FY24 from 10.4% in Q4 FY23, whereas, the real GDP grew to 7.8% from 6.1% in the same period.
In the backdrop of the debate around the accuracy of the April-June GDP data, the finance ministry clarified that the GDP growth print of 7.8% in the quarter was calculated as per the production or income method, while the statistical discrepancy was added to the expenditure method correct the mismatch is two figures, which occurs on a usual basis.
In a post on the platform X (formerly Twitter), the finance ministry said that India consistently uses the income side approach for calculating GDP growth for various reasons and does not switch between the two approaches depending on which one is favourable.
“India’s real GDP growth was 7.8% y/y in Q1 FY24. 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,” the finance ministry said.
“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,” it said.
The clarification from the finance ministry comes over a week after Ashok Mody, visiting professor, Princeton University mentioned in a note that according to latest data compiled by the National Statistical Office, GDP from the income method rose 7.8% in April-June, while from the expenditure it rose only 1.4%. “Both measures clearly have many errors. The NSO nonetheless treats income as the right one and assumes (as implied by its “discrepancy” note) that expenditure must be identical to income earned. This is an obvious violation of international best practice,” Mody had noted.
The finance ministry said that India’s 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,” it said.
“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,” it said.
Moreover, on the nominal GDP slowdown, the finance ministry said that the statistics ministry calculates quarterly GVA (gross-value added) in real terms first, and then, using the deflator, nominal values are obtained. Since Wholesale Price Index has a larger share in India’s GDP deflator, it’s year-on-year contraction since April has lead to slowdown in the nominal GDP rate. “This will normalise in the coming months,” the finance ministry said.
India’s nominal GDP slowed to 8.0% in Q1 FY24 from 10.4% in Q4 FY23, whereas, the real GDP grew to 7.8% from 6.1% in the same period. The Budget has projected India’s nominal GDP to grow 10.5% year-on-year in FY24. And the country real GDP is projected to grow 6.5% in the current fiscal year, according to the Reserve Bank of India.
“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,” the finance ministry said.
“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,” it noted.
Source:financialexpress.com