The Rising Discrepancies in Indian GDP Data Point to a False Growth Story, Say Experts
'When we apply the BEA [US Bureau of Economic Analysis] method to Indian data, the most recent growth rate falls from the headline 7.8% to 4.5% – a marked decline from 13.1% in April-June 2022...' says Ashok Mody, visiting professor of International Economic Policy at Princeton University.
The percentage change in manufacturing – the primary source of employment in every successful developing economy – has declined, as per the NSO data. Credit: PTI
New Delhi: India clocked in year-on-year GDP growth as of this financial year’s April-June quarter (Q1) at 7.8%, according to the National Statistical Office (NSO). However, several experts have pointed out discrepancy in India’s GDP statistics, which present a positive image of economic growth on billboards, while underlying issues such as rising inequalities, job scarcity, and a decline in manufacturing jobs persist.
Ashok Mody, an economist and visiting professor of International Economic Policy at Princeton University, argues that India’s official GDP figures are misleading and should consider both income and expenditure sides. When adjusted using this method, the growth rate falls significantly.
“With an annual growth of 7.8% in the second quarter of this year, India appears to be the world’s fastest-growing major economy. But, again, behind the billboards are human struggles on a massive scale. Growth, in fact, is low, inequalities are rising, and job scarcity remains acute,” he writes for Project Syndicate.
Mody has previously worked for the World Bank and the International Monetary Fund.
India’s GDP is calculated with two different methods – one based on economic activity (at factor cost), and the second on expenditure (at market prices).
The factor cost method assesses the performance of eight different industries. The expenditure-based method indicates how different areas of the economy are performing, such as trade, investments, and personal consumption.
There’s a subhead in the GDP data – ‘discrepancies’. It is used to explain any difference between the GDP calculated through the income and expenditure methods.
Basically, the GDP figures from the two approaches may not be an exact match, but they are fairly close.
However, Arun Kumar, retired professor at Jawaharlal Nehru University, pointed out that “discrepancies as a share of GDP have seen a sharp increase from -3.4% to 2.8%, that is 6.2% of the GDP.”
Source: National Statistical Office, Ministry of Statistics & Programme Implementation
He said the analysis of the GDP expenditure components reveals a concerning trend where most elements have decreased as a percentage of GDP. This includes private consumption, government spending, valuables, and exports. Imports have slightly increased, while Gross Fixed Capital Formation (investment in assets) and Change in Stocks (inventory changes) have remained stable.
“How can most of the shares have fallen unless some share has risen?” he asks.
Therefore, there is an unexplained gap in the GDP calculation, which raises questions about the accuracy of the reported economic data.
Mody notes that the entire point of the discrepancy line is to acknowledge statistical imperfections, not to make them disappear.
“The Indian National Statistical Office’s latest report is a case in point. It shows that while income from production increased at an annual 7.8% rate in April-June, expenditure rose by only 1.4%. Both measures clearly have many errors. The NSO nonetheless treats income as the right one and assumes (as implied by its “discrepancy” note) that expenditure must be identical to income earned. This is an obvious violation of international best practice,” he writes.
“The NSO is covering up the reality of anemic expenditure at a time when many Indians are hurting, and when foreigners are showing only a limited appetite for Indian goods,” he point outs.
He recommends that to assess an economy’s state, one should consider both income and expenditure as imperfect macroeconomic indicators and combine them.
He gives examples of countries like Australia, Germany, and the UK which adjust their reported GDP figures by incorporating information from both income and expenditure perspectives.
In contrast, the US primarily uses expenditure as its main economic performance metric but accounts for the significant differences between income and expenditure by reporting an average of the two as a composite measure.
“When we apply the BEA [US Bureau of Economic Analysis] method to Indian data, the most recent growth rate falls from the headline 7.8% to 4.5% – a marked decline from 13.1% in April-June 2022, when the post-COVID-19 rebound first triggered the current wave of India hype,” he says.
He adds that the most recent data not only confirm a slowdown in economic growth in India but also highlight the underlying causes, which include rising inequalities and a shortage of jobs.
These inequalities are evident in the increased share of imported goods in domestic expenditure, rising from 22% before COVID-19 to 26%.
Furthermore, an overvalued exchange rate has enabled affluent Indians to purchase luxury items like fast cars, expensive watches, and designer handbags, while the majority of the population struggles to even afford basic necessities.
Additionally, the data reveals that the Indian economy is struggling to create jobs. The percentage change in manufacturing – the primary source of employment in every successful developing economy – has declined, as per the NSO data.
National Statistical Office, Ministry of Statistics & Programme Implementation
As the above table shows, the most significant income growth in the recent quarter (at 12.1%) occurred in the finance and real estate sectors, These sectors, Mody says, typically provide only a limited number of jobs for highly qualified individuals.
Gurcharan Das, an intellectual who supported Prime Minister Modi during his first term for his promise to focus on development, said he had grown disenchanted as the damage of the ruling party’s Hindu nationalism overshadowed its economic progress.
In a public lecture this week, he said that although Mr. Modi’s government had failed to deliver the jobs he had promised, it had still taken up key reforms, from streamlining taxes to help unify the Indian market, to ushering in a digital revolution that has brought more people into the formal economy.
But he said he saw danger as the BJP rejected pluralism as the appeasement of minorities. He repeated a warning that has become frequent: that India is on a path of religious fundamentalism similar to what has plunged neighboring Pakistan into catastrophe.
“While dreaming of a grand civilizational state, Hindu nationalists are in fact trying to create a narrow-minded, identity-based, 19th-century European nation-state — a sort of Hindu Pakistan,” he said.