Controversy over Indian GDP data not good for country’s economy

Wholesome debate on the GDP growth rate is the need of the hour and the Union Finance Ministry should take the lead to put curtains on recurring discussion about India’s GDP growth numbers. Furthermore, keeping the economy away from politics is always good for India as it aspires to be a developed nation by 2047

The recent G20 Summit hosted by New Delhi, elevated India’s image globally. The Group of 20 countries is an important global forum because the world’s top countries by the size of economy are integral to it.

Before the New Delhi conclave, this group accounted for 80 per cent of world’s gross domestic product (GDP) and 75 per cent of international trade. With the African Union joining it this year, these numbers will be much higher, hereafter.

India hosted such a large-scale global conclave way back in 1983 when the country’s capital was the venue for the seventh NAM (Non-Aligned Movement). Indira Gandhi was the Prime Minister at the time. With that Summit, India arrived on the global stage and she hogged global limelight.

Now 40 years later, India went through a similar moment of global glory and Prime Minister Narendra Modi, who has been trying in his own way to elevate the country’s image across spectrums globally, grabbed the opportunity with both hands. India, under his leadership, succeeded in getting unanimous adoption of the New Delhi Declaration, which also included the contentious Russia-Ukraine conflict, a rare feat in recent times. So, the 18th edition of G20 Summit was a success.

But as India was gearing up for the much-awaited mega summit, a controversy erupted over India’s economic growth data. That’s really unfortunate, to say the least.

On August 31, the National Statistical Office (NSO) of the Union Ministry of Statistics and Programme Implementation came out with its data on the country’s economic activity for the first quarter of the current fiscal i.e. April-June 2023 period. According to its estimates, the Indian economy clocked 7.8 per cent upswing in Q1FY24. It was a lot lower than the 13.1 per cent economic growth the country witnessed in the same quarter a year ago. But that was the time when the economy rebounded after the Covid-induced slowdown. So, the growth was obviously steep in the first quarter of the last financial year. Therefore, lower growth in Q1 of this fiscal is understandable. Still, India retained the tag of ‘fastest growing major economy’ in the Q1FY24 as well.

But Prof. Ashoka Mody, an Indian-born American economist and visiting professor on International Economic Policy at Princeton University, shocked many by expressing doubts over India’s economic growth numbers for the first quarter.

In his article published in Project Syndicate with a provocative title of ‘India’s Fake Growth Story’, he claimed that the GDP growth was just 4.5 per cent in Q1, not 7.8 per cent as claimed by the NSO. Interestingly, his write-up appeared on September 6, just three days before the G20 Summit took off. He also went on to say that Indian authorities sugarcoated the GDP data to showcase ‘flattering’ growth numbers ahead of the G20 summit.

According to him, the Indian economy’s real growth, as per the official data, was at 7.8 per cent on the production or income side while the upswing was just 1.4 per cent on the expenditure side. Ideally, both should be at the same level, though some discrepancy could not be ruled out.

Here, as the discrepancy is very wide in the first quarter, average of both production and expenditure should be taken as the growth, he contended, citing the practice of the US Bureau of Economic Analysis (US BEA). If the US BEA method is applied, the Q1FY24 growth will come down to 4.5 per cent, he claimed.

In a swift counter, India’s Chief Economic Advisor V. Anantha Nageswaran refuted the allegations and said that India always took income side data into account while calculating its GDP growth. The Union Finance Ministry, which reacted late, also defended the numbers, insisting that there was no deviation from the method adopted by India.

But a controversy over the GDP data is not good for the economy. Economists should refrain from bringing politics into the economy. Interestingly, the timing of Mody’s article raises eyebrows. A cursory glance at Project Syndicate’s data shows that Mody contributes articles to it regularly. Ironically, he wrote about the depreciating Indian rupee way back in July 2013. After that, he mostly focused on the global economy. But he suddenly shifted his attention to India and its economy in February 2023. Since then, he contributed five articles all of which carried negative connotations about India and its economy.

Of course, he is not alone in disputing the Indian growth claims. Raghuram Rajan, noted economist and former governor of Reserve Bank of India, also expressed skepticism about the pace of Indian growth. During an interview to Congress leader Rahul Gandhi last year, he said India would be lucky if it clocked five per cent economic growth in FY24. It is very unlikely that his prophecy will come true if we take official numbers for the first three months of FY24 into consideration. However, Mody’s calculation brought the growth rate to lower than Rajan’s projection!

But none of the global rating agencies expressed any doubts over India’s Q1 GDP data till now. Moreover, some of the agencies went in for an upward revision of their growth projections for the current fiscal and calendar year after the first quarter GDP numbers were released. Global rating agencies have a battery of in-house economists, who could have pointed out this discrepancy!

Anyway, a wholesome debate on the Indian GDP numbers is the need of the hour and the Union Finance Ministry should take the lead to put curtains on recurring discussions about India’s economic growth data.

Furthermore, keeping the economy away from politics is always good for, India which aspires to be a developed nation by 2047. Will that happen in the future? Hope so.