New Delhi: An embarrassed government swung into damage control mode a day after economists pointed out that its latest numbers for economic growth in the first quarter of the current fiscal were inconsistent.
The Central Statistical Organisation (CSO) on Wednesday increased one of the measures of economic growth— gross domestic product (GDP) by expenditure—from 3.7% to 10%.
A senior government statistician said the flaw in the earlier numbers released was because of a measure of inflation used to separate price increases and real output growth. “There was a problem in the price deflator used to calculate the expenditure side of gross domestic product.
Generally, the output and expenditure side measurement of GDP are close to each other or there is a difference of one or two percentage points,” said S.K. Das, director general of CSO.
The national accounts data released by the CSO on Tuesday showed the economy grew at 8.8% in the first quarter of the current fiscal as measured by the factor cost while the growth rate as measured by expenditures at market prices was only 3.7%.
The size of an economy and its growth rate is calculated through two methods: factor cost on the supply side and expenditure on the demand side. GDP at factor cost is a measure of income paid all economic agents. GDP measures through expenditure adds indirect taxes and deducts subsidies from the factor cost method to calculate economic growth based on market prices.
Both methods should ideally lead to the same result. Pronab Sen, who till recently was the chief statistician of India and currently is the principal adviser in the Planning Commission, said the problem had arisen due to the wide diversion between the price deflators used to calculate the two sets of GDP numbers.
“While the price deflator used to calculate GDP at factor cost is 12.9%, the price deflator used for GDP at market price is 21%. The two figures used to be pretty close,” Sen said.
A deflator is a measure of inflation and is used to remove the impact of a rise in prices on economic growth.
Manas Paul and Rituparna Banerjee, economists with Axis Bank Research, said the discrepancy, in real terms (constant prices) is significantly larger compared with historical trends. “From average levels of Rs82,000 crore every quarter for the past couple of years, it has come down to Rs7,000 crore in Q1. Since a break up of this number in terms of indirect tax collections and subsidies is not given, data which is given by the Comptroller General indicates that subsidy payments have increased significantly to have reduced the net indirect tax numbers to this extent.” they added.
According to Sen, the quality of the expenditure side GDP data is questionable. “We started releasing this set of data on an experimental basis two years ago. We are still not confident of the robustness of this set of data.”
The data showed overall consumption growth slowing down to 0.2% in the first quarter from 2.6% in the previous quarter. Investments also sharply decelerated to 3.7% in the April-June quarter from 17.7% in the previous quarter.
While public consumption was shown to have grown by a meagre 0.3%, public consumption contracted by 0.6%. Economists Rohini Malkani and Anushka Shah with Citigroup India said in a report that while the contraction in public consumption could be attributed to the base effect, the lack-lustre growth in private consumption is at odds with consumption trends seen in autos, durables and others.
“We expect the GDP deflator at market price to be revised lower, resulting in an upward revision to GDP growth at market price, as well as upward revisions to consumption and fixed investment components. Therefore, we think the underlying momentum in domestic demand has not weakened by as much as the expenditure based measure of GDP currently suggested,” Sonal Verma and Ketaki Sharma, economists Nomura Financial Advisory and Securities (India) Pvt. Ltd.