The Finance Ministry on Friday dismissed the criticism of inflated GDP saying it has followed the consistent practice of using the income side estimates to compute economic growth, and stressed many international agencies have revised upwards their forecast after seeing the first quarter data.
The critics, the ministry said, should have looked at other data like purchasing managers' indices, bank credit growth, increase in capital expenditure and consumption pattern to assess the growth.
India's real GDP growth was 7.8 per cent on year-on-year (y/y) basis in Q1 FY24 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 ministry said in a long post on X.
In fact, in FY23 and FY22, the "statistical discrepancy" was negative and in other words, growth as per the Income Approach was lower, the ministry said, adding it would have been higher than the 7.2 per cent reported for FY23 and higher than the 9.1 per cent reported for FY22, using the expenditure approach.
Former Chief Economic Advisor Arvind Subramanian, in an article, argued that India's GDP is not measured from the expenditure side rather than productivity side.
Even the principal opposition party Congress earlier in the day alleged that the real GDP numbers may be inflated as they do not accurately reflect the impact of inflation on GDP growth.
The ministry said 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.
"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," the post said.
Observing that India's GDP deflator is dominated by the Wholesale Price Index (WPI), the ministry post said WPI 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," it said.
If inflation was higher, critics would argue that nominal GDP growth is much higher because of inflation and that there was little underlying activity, it said, adding the Ministry of Statistics and Programme Implementation (MoSPI) calculates quarterly Gross Value Added (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 and this will normalise in the coming months, it said.
So, it said, 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, it said.
In other words, it said, critics want to latch on to anything that does not paint the Indian economy in a good light.
Ideally, it said, 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.
"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.
Last month, India recorded GDP growth of 7.8 per cent during the April-June period of 2023-24, the highest in the past four quarters, on the back of double-digit expansion in the services sector, retaining its position as the world's fastest-growing major economy.
The Finance Ministry 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.
The reaction from the ministry came hours after Congress general secretary Jairam Ramesh said investment and exports have also slowed dramatically, which reinforces the lived reality of the vast majority of Indians - "that all is not well''.
Ramesh shared the opinion piece by Subramanian on the current economic scenario.
In a post on X, Ramesh said, "When headline management takes precedence over serious policy making, the government starts to believe its own tall stories of exuberant growth." The reality is far more sobering as reasoned out clinically by the Modi government's former chief economic advisor, he said.
"The real GDP numbers may after all be inflated as it does not accurately reflect the impact of inflation on GDP growth," the Congress general secretary said.
Earlier this month, Chief Economic Advisor V Anantha Nageswaran had rejected criticism of "statistical discrepancy" in the first quarter GDP data, saying when the same statistical authority reported the severest contraction in the first quarter of 2020, the naysayers had called it credible as it suited their narrative.
"In Q1 of 2023-24, the discrepancy of 2.8 per cent has a plus sign. This indicates that the expenditure side has explained only 97.2 per cent of the income side. It does not mean that the 2.8 per cent that has yet to be explained does not exist,” Nageswaran said in an op-ed article.
"It exists and lends itself to being explained in subsequent quarters. Similarly, the preceding eight quarters have shown negative discrepancies. It means that the expenditure side has been over-explained and needs to be reconciled," the article co-authored by senior government economist Rajiv Mishra read.
The article was written in light of debates over India's economic performance and economist Ashoka Mody, a Princeton University professor, raising concerns regarding the country's GDP growth rate for the first quarter of the financial year 2023-24.
"Indian authorities are downplaying inconvenient macroeconomic facts so that they can celebrate seemingly flattering headline figures ahead of hosting the G20 summit. But, in covering up the growing struggles faced by the vast majority of Indians, they are playing a cynical and dangerous game," Mody said in an article posted by Project Syndicate titled "India's Fake Growth Story".
Mody has contended that the National Statistical Office (NSO) is utilising selective data, which, when examined more comprehensively, yields a significantly lower GDP growth rate than the 7.8 per cent announced by the government last month.