GDP growth has often undershot RBI’s projections in recent years

Global headwinds, inflationary pressures and monetary policy tightening have prompted several agencies to downgrade growth estimates for India. But RBI’s downgrade will, in large part, also be due to the lower-than-expected GDP growth in the April-June quarter, data for which was released last month.

India’s economy grew 13.5% in the June quarter, sharply below RBI’s forecast of 16.2%. Friday will be the first time the central bank will release a GDP forecast since the data was released.

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But this was not the first instance the official GDP figures came in lower than RBI’s projections. A Mint analysis showed that out of the past 16 quarters, excluding the one that ended 30 June 2020, GDP growth has fallen short of RBI’s prediction 11 times. RBI had not given its projection for April-June 2020, the quarter of the first pandemic lockdown.

RBI updates its forecasts multiple times based on evolving circumstances. For this analysis, its last projection before the release of each quarter’s data was taken. For example, for April-June GDP data—released in end-August—the projection made by RBI in its August policy has been taken. For July-September, projection made in the October policy has been taken, and for October-December and January-March, projections made in the December policy have been taken.

Since the beginning of FY22, GDP growth figures have undershot RBI’s projections—that is, RBI overestimated growth—in four quarters by 1.2-2.7 percentage points. On the contrary, GDP growth overshot its forecast in FY21—the first year of covid—when India was under lockdown, leading to a technical recession.

“In the past two years, there were a lot of shocks that may have led to a deviation from the actual numbers. We have seen more negative shocks of late, which have made GDP forecasting difficult," said Sakshi Gupta, an economist at HDFC Bank.

However, between April-June 2018 and October-December 2019, GDP growth figures were lower than those estimated by RBI in all but one quarter.

“Policymakers around the world tend to be more optimistic. This is not unique to RBI," said Abhishek Upadhyay, senior economist at ICICI Securities Primary Dealership. Upadhyay expects RBI to revise its full-year GDP growth forecast downward to 7%.

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