Economists Say India's Q3 GDP Data May Overstate Growth Trends

Alongside GDP, the government's statistical office also releases GVA data, which measures the total value of goods and services produced

Economists have expressed reservations regarding India's third-quarter gross domestic product (GDP) growth, which surged by a robust 8.4 per cent year-on-year, suggesting that it might be overstating the actual economic expansion. They point to a more subdued increase in gross value added (GVA) in the economy as a more accurate indicator, according to a news agency Reuters report.

Alongside GDP, the government's statistical office also releases GVA data, which measures the total value of goods and services produced. GVA is considered a more precise measure of economic growth as it excludes indirect taxes and includes government subsidies. In the third quarter, GVA expanded by 6.5%, contrasting with the 8.4 per cent GDP growth.

“The above-8% real GDP print should be read with caution given the large gap with GVA, a decline in agriculture activity and two-paced economic growth (investment far outpacing consumption), said Citi economist Samiran Chakraborty in a note on Thursday, reported Reuters.

They suggested that the discrepancy could be attributed to an increase in tax collections and a decrease in government subsidies during the quarter.

The divergence is at a 10-year high, said Neelkanth Mishra, chief economist at Axis Bank, according to the report. “We don’t expect divergences of similar magnitude to arise in 2024-25,” said Mishra. He anticipates that the Indian economy will expand by 6.5 per cent in the upcoming fiscal year, a decline from the 7.6 per cent growth projected for the fiscal year ending on March 31, 2024.

The statistical office's full-year growth projection indicates that the economy is expected to expand by 5.9 per cent in the January-March 2024 quarter, a forecast deemed conservative by Citi's Chakraborty.

Investment remains the primary driver of growth, increasing by 10.6 per cent year-on-year in the third quarter. This growth was primarily fueled by government spending and residential real estate. In contrast, consumption saw a modest increase of only 3.5 per cent, falling below the overall economic growth rate, states the report.

“Although a pickup in private consumption was anticipated, owing to the festive season buoyancy that proxy indicators had pointed towards, the extent of upside was underwhelming for sure,” said Yuvika Singhal, an economist at QuantEco Research, as per the report.