The finance ministry of India has defended the country’s GDP growth estimates, countering a research report that claimed the figures were overstated. The ministry’s response comes after a research report suggested that India’s economic growth of 7.8% in the April-June quarter is not accurate. Instead, the report argued that the growth numbers might be understating the reality. The ministry defended the official estimates, stating that manufacturing growth indicated by the Index of Industrial Production (IIP) is lower than what manufacturing companies are reporting. It also highlighted other growth indicators such as purchasing managers’ indices, bank credit growth, and improved consumption to support its claims.
The ministry also addressed concerns about the methodology used to calculate GDP growth. It clarified that India consistently uses the ‘income-side approach’ to calculate GDP growth for various reasons. This approach doesn’t switch to the expenditure-centric approach based on convenience or to present favorable numbers. The ministry explained that a balancing figure called the statistical discrepancy is added to the expenditure approach estimate. This discrepancy can be both positive and negative, but over time, it evens out. In fact, recent data shows that the statistical discrepancy has been negative in certain years, indicating lower growth according to the income approach. The ministry further dismissed claims that nominal GDP growth being lower than real growth suggests weak economic activity. It stated that this argument doesn’t hold, as nominal GDP growth is affected by wholesale price inflation, which has been in the negative zone.
The finance ministry’s response comes in the wake of a column by Ashoka Mody, an economics professor at Princeton University, who claimed that India’s GDP growth calculated via the expenditure approach was only 1.4% in the June quarter. The ministry refuted this, emphasizing that India consistently follows the income-side approach and doesn’t rely solely on the expenditure approach. It defended the GDP growth estimates, refuting claims of overestimation and clarifying the methodology used. The ministry also criticized arguments suggesting that the calculation of GDP deflator affects the reliability of nominal GDP growth. It dismissed these arguments as baseless.
Overall, the finance ministry’s response aims to address concerns raised over India’s GDP growth estimates and provide a robust defense of the official numbers. It cites multiple growth indicators and clarifies the methodology used, dismissing claims of overestimation and weak economic activity. The ministry asserts that the economic activities in India remain robust, supported by various factors such as manufacturing growth, bank credit growth, and improved consumption.
