The Finance Ministry has responded to criticism regarding the calculation of India’s GDP, asserting that it has followed consistent practices and highlighted that several international agencies have raised their growth forecasts after reviewing the first-quarter data. The ministry advised critics to consider alternative indicators such as purchasing managers’ indices, bank credit growth, capital expenditure, and consumption patterns to evaluate the country’s economic growth.
According to the Income or Production Approach, India’s real GDP growth in the first quarter of FY24 was 7.8% YoY. The ministry emphasized that the Expenditure Approach would have yielded a lower growth figure, and a statistical discrepancy is added to account for this difference. They explained that discrepancies can be both positive and negative and tend to even out over time.
The ministry addressed former Chief Economic Advisor Arvind Subramanian’s argument that India’s GDP should be calculated from the expenditure side rather than the productivity side. They clarified that India consistently uses the income side approach to calculate GDP growth for various reasons and does not switch between approaches based on which one is more favorable. Regarding concerns about nominal GDP growth being lower than real GDP growth, the ministry dismissed this as an attempt to discredit the GDP numbers, emphasizing that both growth rates are reliable indicators.
The ministry also addressed concerns about the accuracy of India’s GDP deflator, which is dominated by the Wholesale Price Index (WPI). They explained that WPI peaked in the first quarter of FY23 due to global events such as the war in Ukraine and supply-side disruptions, but it has since contracted. The ministry reassured that inflation rates will normalize in the coming months. They further stated that critics seeking to discredit India’s GDP growth by questioning the calculation of the GDP deflator are merely searching for arguments that do not portray the Indian economy in a positive light.
To substantiate the country’s growth, the ministry pointed out various indicators, including the Purchasing Managers’ Indices, double-digit bank credit growth, improved consumption, and increased capital expenditure. They also highlighted that many international agencies have revised their growth forecasts upward for FY24 after reviewing the first quarter data, which they claim would not have happened if the underlying economic activity was weak.
While the Finance Ministry defended its calculations, the opposition party, Congress, continued to express doubts about the accuracy of the GDP numbers. They suggested that investment and exports have slowed dramatically, contradicting the government’s claims of exuberant growth. Congress general secretary Jairam Ramesh shared an opinion piece by Arvind Subramanian, which raised concerns about the potential inflationary impact on GDP growth.
– Finance Ministry statement
– Arvind Subramanian’s article
– Congress general secretary Jairam Ramesh statement