Recently, the Ministry of Finance has addressed concerns regarding the credibility of Indian GDP (Gross Domestic Product) data, particularly in light of a 7.8% increase in the first quarter of FY 2023-24. Several experts have pointed out discrepancy in India’s GDP statistics,which present a positive image of economic growth on billboards, while underlying issues such as rising inequalities, job scarcity, and a decline in manufacturing jobs

What are the Concerns Raised with Respect to GDP Numbers?

• Discrepancies in GDP Calculation:
  • An analysis of the GDP expenditure components reveals a concerning trend where most elements have decreasedas a percentage of GDP.
    • This includes private consumption, government spending, valuables, and exports.
  • Imports have slightly increased, while Gross Fixed Capital Formation(investment in assets) and Change in Stocks (inventory changes) have remained stable.
  • Therefore, there is an unexplained gap in the GDP calculation, which raises questions about the accuracy of the reported economic data.
• Dual GDP Calculation Methods:
  • India''s GDP is calculated using two distinct methods: Economic activity (at factor cost) and Expenditure (at market prices).
    • The factor costmethod assesses the performance of eight different industries. The following eight industry sectors are considered in this cost:
      • Agriculture, forestry, and fishing,
      • Mining and quarrying,
      • Manufacturing,
      • Electricity, gas, water supply, and other utility services,
      • Construction,
      • Trade, hotels, transport, communication, and broadcasting,
      • Financial, real estate, and professional services,
      • Public administration, defense, and other services
    • The expenditure-based methodindicates how different areas of the economy are performing, such as trade, investments, and personal consumption.
  • The differences between these methods may lead to variations in GDP figures.
• Impact on Public Perception:
  • Experts express concern that presenting an overly positive image of economic growththrough GDP figures can mask the economic struggles and challenges faced by a significant portion of the population.
  • This can impact public perception and policy decisions.
• Outdated Data Sets and Delayed Census:
  • One of the major concerns is the usage of outdated data setsin the calculation of GDP, which may not accurately reflect the current economic scenario.
  • Additionally, delays in conducting the census contribute to potential inaccuracies in economic assessments.
  • There are concerns that the methods employed may not effectively capture the complex and evolving economic landscape, leading to potentially skewed GDP figures.
• Allegations of Government Interference:
  • Allegations of government interference in the calculation and release of GDP figures have surfaced.
  • Experts worry thatpolitical motivations might influence the presentation of economic data, impacting its accuracy and reliability.

How Has the Government Addressed the Issues Raised by the Experts?

• Credibility of Indian GDP Data:
  • The Finance Ministry refuted doubts about the credibility of Indian GDP data,clarifying that it is not seasonally adjusted and is finalized three years later.
  • This implies that relying solely on GDP indicators to assess underlying economic activity is misleading.
• Need for Comprehensive Analysis:
  • The Ministry urgedcritics to consider various growth indicators, such as Purchasing Managers’ Indices, Bank Credit Growth, and consumption patterns, to form a well-rounded view of the economic activity.
• Underestimation of Growth Numbers:
  • The Ministry argued thatIndia''s growth numbers might actually underestimate the economic reality, citing the Index of Industrial Production (IIP) as an example where reported manufacturing growth is lower than what companies are indicating.
• Nominal vs. Real GDP Growth:
  • Addressing concerns about nominal GDP growth being lower than real GDP growth, the Ministry explained that India''s GDP deflator,dominated by the Wholesale Price Index (WPI), is affected by various factors and will normalize in the coming months.
• Income Approach for GDP Calculation:
  • The Ministry highlighted that India consistently uses the Income Approach for calculating GDPgrowth and does not switch between approaches based on favorability, dismissing arguments that favor nominal GDP growth.