India’s GDP growth of 7.8 per cent in the first quarter of financial year 2024 has made the country the fastest growing economy in the world. The strong performance in the first quarter came amidst a slowdown in other major economies of the world.
However, Ashoka Mody, economics professor at Princeton University, has claimed in a new article that the government deliberately overestimated the GDP growth in first quarter of FY24 due to the G20 summit, which is being held in New Delhi this year.
In an article written for Project Syndicate, Mody wrote, “Indian authorities are choosing to dismiss inconvenient facts so that they can parade seemingly flattering images and headline figures ahead of the G20 summit.”
Mody's article has sparked a big row which has attracted the attention of Chief Economic Advisor (CEA) V Anantha Nageswaran.
So What Is Mody’s Claim On GDP Growth In Q1?
There are two approaches of calculating the GDP of a country. One is taking into account the income earned by producing goods and services and the other approach is by looking at the expenditure for buying goods and services. Ideally, the growth rate in both the approaches should be same. However, due to issues in data, there are often gaps between the two which are taken into account while making the final calculation.
Mody wrote in his article that the discrepancy between the two often does not matter because they follow the same trend. However, sometimes there is a big gap between the two.
Looking at the national accounts data for the first quarter, the growth rate calculated by the income approach stood at 7.8 per cent while GDP calculated via expenditure approach grew by 1.4 per cent. Mody says that the National Statistics Office is “covering up” the low expenditure trend.
“The entire point of the discrepancy line is to acknowledge statistical imperfections, not to make them disappear,” Mody wrote.
According to Mody, the correct approach would be to take into account the discrepancies in both income and expenditure approach. He argues that India should follow the approach of US Bureau of Economic Analysis, which accounts for the gap between the two by taking the average.
Mody concludes that the real GDP growth for the country stood at 4.5 per cent, significantly lower than the 13.1 per cent growth in the same period last year.
CEA Counters Mody’s Claim
In an op-ed written for Mint, CEA Nageswaran and senior advisor in finance ministry Rajiv Mishra dismissed the claims made by Mody.
According to them, the approach for calculating the GDP has been consistent for years. They argue that the headline number has consistently been calculated using the income approach, even if it was lower than the growth rate calculated using expenditure approach.
According to the authors, in the previous eight quarters, the GDP calculated using the expenditure approach was higher than the one obtained using the income approach. They added that the discrepancy has been within 6.4 per cent to – 4.8 per cent range since 2011-12. In Q1 FY24, it was 2.8 per cent.
Commenting on the discrepancy, they wrote, “[The discrepancy] indicates that expenditure side has explained only 97.2 per cent of income side. It does not mean that the 2.8 per cent that has yet to be explained does not exist. It exists and lends itself to being explained in subsequent quarters.”
The authors also noted that several agencies and economists had estimated the growth to be around 7.8 per cent in the first quarter.