Home > politics > policy > What was India’s growth rate in 2014-15?

New Delhi: So at what rate did the economy grow in 2014-15, according to the controversial GDP numbers released by the Central Statistics Office (CSO) on 29 May? Depends whom you ask. CSO and the government will tell you the growth rate was 7.3%, while if you believe the Reserve Bank of India (RBI), it was a tad lower at 7.2%.

The problem gets serious if you look at the fourth quarter (January-March) number. RBI would like you to believe that the economy decelerated to 6.1% in the fourth quarter from 6.8% in the previous quarter, while CSO will tell you that the economy actually accelerated to 7.5% from 6.6% in the third quarter.

But just don’t jump to blame RBI yet. The problem is, while CSO would like you to read GDP at market prices data, RBI believes the gross value added (GVA) at basic prices data available in CSO release are more useful.

So, the huge difference of 1.4 percentage points (7.5%-6.1%) in the fourth quarter between the two growth rates is due to the steep increase in net indirect (product) taxes. If you remember, the government had effected a series of excise duty hikes on petrol and diesel in the last six months to fund its infrastructure projects as international crude oil prices plummeted.

The world of economic growth within the country was much simpler till January this year when the GDP was measured at factor cost. However, it was not comparable with GDP growth numbers released by other countries which are at market prices.

GVA at basic prices adds the net of production taxes to GDP at factor cost. Stamp duties and property taxes are part of production taxes in India, while subsidies to labour, capital and investment such as apprentice subsidies and interest subsidies constitute production subsidies.

What may create confusion is when RBI projects the economy to grow at 7.6% in 2015-16, based on GVA at basic prices while the government sticks to GDP at market prices and projects the economy to grow at 8.1-8.5% in the current fiscal year. Internationally, all economic growth projections are made based on GDP at market prices.

Chairman of the National Statistical Commission Pronab Sen said GDP at market prices shows overall distributable income generated in the economy while GVA at basic prices is a measure of production activities in the economy. “It may create confusion when RBI chooses GVA at basic prices over GDP at market prices because the rising net indirect taxes is a sign of improving economic activities within the economy and cannot be set aside," he added.

Chief economist at Care Ratings Madan Sabnavis said the problem is, sectoral projections can only be made based on GVA at basic prices as the net indirect taxes accrues to the economy as a whole and cannot be attributed to specific sectors. “In other countries, they may have tax and subsidy elements for each sector and can make sectoral projections for GDP at market prices. In India, I calculate projections at GVA at basic prices and add 0.1 percentage points to make projection for GDP at market prices," he added.

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