'Critics Want To Latch On To...': Finance Ministry Defends GDP Growth After Congress Questions Figures

The Union Finance Ministry hit back at criticism of India's GDP number saying that "critics want to latch on to anything that does not paint the Indian economy in a good light".

In the wake of criticism from the opposition regarding India's GDP data for the first quarter (April-June) of the current fiscal year, the Indian government issued a comprehensive clarification on Friday. The controversy stems from India's reported GDP growth rate of 7.8 per cent in Q1 of 2023-24, as per data released on August 31. The opposition Congress had cast doubt on the figures, alleging inflationary inflation.

India's real GDP growth of 7.8 per cent year on year in Q1 FY24, calculated using the income or production approach, was defended by the Union Finance Ministry in a series of statements on X (formerly Twitter). However, it acknowledged that the figure would have been different if the expenditure approach were applied, necessitating the addition of a balancing figure known as the "statistical discrepancy." These discrepancies can be both positive and negative and tend to balance out over time.

The Ministry clarified that the income approach had yielded lower growth figures in FY23 and FY22, while the expenditure approach would have shown higher growth compared to the 7.2 per cent reported for FY23 and the 9.1 per cent reported for FY22. The Ministry affirmed India's consistent use of the income approach for GDP calculations for various reasons, asserting that it does not switch between the two approaches based on convenience.

Regarding the comparison between nominal GDP growth and real GDP growth, the Ministry dismissed it as an attempt to discredit GDP figures. It explained that India's GDP deflator, primarily influenced by the wholesale price index (WPI), had peaked in Q1 of 2022-23 due to factors such as oil and food price increases related to the Ukraine conflict and supply disruptions. However, the WPI has since been contracting year on year, a trend expected to normalise once statistical base effects diminish.

"In other words, critics want to latch on to anything that does not paint the Indian economy in a good light," the ministry remarked.

The Ministry countered the argument that higher nominal GDP growth indicates little underlying economic activity, asserting that the calculation of GDP deflator is a known method. It emphasised that critics ought to consider multiple growth indicators, such as Purchasing Managers' Indices, bank credit growth, and consumption trends, to form a more comprehensive view of the Indian economy's strength.

Furthermore, the Ministry highlighted that Indian GDP data is not seasonally adjusted and undergoes multiple revisions before finalisation, typically three years after the close of the relevant financial year. It cautioned against relying solely on GDP indicators to gauge economic activity and encouraged the use of higher-frequency data.

The Ministry pointed out that many international agencies had revised their growth forecasts for FY24 upwards following the release of Q1 data, suggesting confidence in India's underlying economic activity. It challenged critics' assertions that the Indian economy is not performing well and emphasised the importance of considering a broader range of indicators when assessing the nation's economic health.

Congress Questions GDP Numbers

The response came after the Congress party raised concerns about the accuracy of real GDP figures, suggesting that they may not provide a true reflection of the impact of inflation on economic growth.

Congress General Secretary Jairam Ramesh highlighted an opinion piece authored by Arvind Subramanian, the former Chief Economic Advisor to Prime Minister Narendra Modi's government, addressing the current economic scenario. In a statement shared via a social media post, Ramesh expressed his concerns: "When headline management takes precedence over serious policymaking, the government starts to believe its own tales of exuberant growth. The reality, as clinically reasoned out by the former Chief Economic Advisor of the Modi government, is far more sobering."

He raised questions about the accuracy of the real GDP numbers, suggesting that they may be inflated and do not adequately account for the impact of inflation on economic growth. He emphasised that not only has economic growth been called into question but also highlighted a dramatic slowdown in both investment and exports, further underscoring the challenges faced by the majority of Indians.

Ramesh added, "The economic narrative being promoted by the Prime Minister and his supporters is vastly exaggerated. It does not align with the lived experiences of most Indians, who are grappling with economic uncertainties."

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