The finance ministry on Friday slammed a research report that claimed that India’s 7.8% economic growth in the April-June quarter is overstated, as it defended the official estimates, saying if anything, the growth numbers might “understate the reality”.
This is because manufacturing growth indicated by the Index of Industrial Production (IIP) is far lower than what manufacturing companies are reporting, it added. In a post on X, the ministry said, “Ideally, critics would have done well to look at several other growth indicators to see if other data match their conclusions.”
Industrial production grew 4.5% in the April-June quarter. Purchasing Managers’ Indices suggest 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, the ministry stated, asserting that the economic activities remained robust.
Claiming that India is “covering up” the low expenditure trend, Ashoka Mody, economics professor at Princeton University, earlier this month in a column said GDP growth calculated via the expenditure approach stood at just 1.4% in the June quarter.
The ministry, however, countered it, saying India consistently uses the “income-side approach” to calculate GDP growth for various reasons and it doesn’t switch between the income and expenditure-centric approaches, depending on which one is favourable.
It said a balancing figure – statistical discrepancy – is added to the expenditure approach estimate.
“These discrepancies are both positive and negative. Over time, they wash out,” it said. In fact, in FY22 and FY23, 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.
As for nominal GDP growth being lower than real growth, this is a “new bogey being spread to discredit GDP numbers and indicate that underlying economic activity is quite weak” and “both do not stand up to scrutiny”, it said. Nominal GDP growth was lower, as the deflator is dominated by wholesale price inflation, which has been in negative zone.
“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,” it said.
