The recent announcement of India’s fiscal first-quarter GDP growth at an impressive 7.8% has elicited a wide array of responses, ranging from enthusiastic optimism to skepticism. While some voices have hailed this growth as a positive sign of India’s economic trajectory, others have cast doubt on the credibility of the figures. In this article, we will unpack the nuances surrounding India’s GDP data and explore the consensus among experts regarding its future economic prospects.
Understanding the “Statistical Discrepancy”
One point of contention has been the so-called “statistical discrepancy” that appears in India’s GDP calculations. The discrepancy arises from the difference between estimating national income from the income side and the expenditure side. The income-side approach often yields more accurate estimates, as it calculates income or gross value added (GVA) by taking the difference between output and inputs. Conversely, the expenditure-side approach can be more challenging, requiring a breakdown of expenses on final and intermediate goods and services.
In the first quarter of 2023-24, a 2.8% positive discrepancy was noted. This indicates that the expenditure side accounted for only 97.2% of the income side. It does not imply that the unexplained 2.8% does not exist; it simply suggests that it may be elucidated in subsequent quarters. Moreover, the eight preceding quarters showed negative discrepancies, indicating that the expenditure side was over-explained and needed reconciliation. Over a more extended period, these discrepancies have balanced each other out.
Consistency Over the Years
Critics have suggested that India’s GDP is exaggerated, but historical data does not support this claim. Between the first quarter of FY 2012 and the first quarter of FY 2024, the compound annual growth rate (CAGR) of real GDP (quarter-on-quarter) from both the income and expenditure approaches averaged at 5.3%. This data contradicts allegations of consistent exaggeration. In fact, there has been a fair distribution of discrepancies within a range of 6.4% to (-)4.8% since 2011-12, with the latest quarter’s discrepancy falling well within this range.
Comparing Credibility Over Time
It is worth noting that when statistical authorities reported a severe GDP contraction of approximately 25% in the first quarter of 2020-21, there was no skepticism regarding the credibility of Indian statistics. In that instance, the data suited the naysayers, and hence it was deemed “credible.” The current GDP growth data follows a similar methodology, and the charge of exaggeration lacks a convincing foundation.
Expert Consensus and Indicators
Numerous agencies and economists had projected growth rates ranging from 7.8% to 8.3% for the first quarter of 2023-24, and the Reserve Bank of India (RBI) had anticipated 8% growth. High-frequency indicators, such as GST collections, e-way bills, and PMIs for manufacturing and services, have consistently supported India’s robust growth trajectory. Private sector capital formation has rebounded strongly, with RBI also noting companies’ strong investment intentions.
