India may still cross the ‘miracle economy’ benchmark of 7% GDP growth.
India’s economic growth story keeps getting better. I’ve long been cautious about cheering data that show extraordinary improvements. Later data revisions can present a very different picture. But at least two cheers, if not three, are warranted by the latest GDP data.
GDP growth rate for FY25 has been revised upwards from 6.3% to 6.5%. Readers might view this as a good, but not remarkable, improvement. The picture improves dramatically when we look at the upward revision for growth in FY24, the previous year, from 8.2% to 9.2%. Thereby hangs quite a tale.
Chief economic adviser V Anantha Nageswaran believes India is on a growth trajectory of 6.5%. He had predicted 6.5% growth at the start of both FY24 and FY25, continuing the trend of the last two decades. That provides the background to judge the latest estimates of 9.2% for FY24 and 6.5% for FY25.
Critics have argued that the extraordinary performance in FY24 was misleading. The first advance estimate (AE) for that year was 7.4%. It was upped to 8.2% in the second AE, and now to 9.2% in the provisional estimate. The final estimate is yet to come. Many readers are confused by as many as four revisions, which are so large as to stoke suspicions of data fiddling. However, Pronab Sen, India’s elder statesman in statistical issues, says that while data collection suffers from several flaws that need correction, they are not fiddled.
The official inflation rate is currently based on CPI. But a different inflation rate – GDP deflator – is used to measure GDP growth. The two are often similar, but can also be very different. Since services account for three-fifths of GDP, they are given much bigger weightage in the GDP deflator than in CPI. In FY24, GDP deflator seems to have shrunk dramatically to just 0.6%, far lower than the 4.6% inflation indicated by CPI.
Source: Economictimes