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The Indian economy's recent GDP figures have become a subject of intense scrutiny and debate, largely due to the significant revisions made by the National Statistics Office (NSO) over a relatively short period. Starting with an initial estimate of 7.3% for the fiscal year 2023-24, the GDP growth was subsequently revised upwards to 7.6%, then to 8.2%, and finally to a remarkable 9.2%. This series of revisions, amounting to a substantial 1.9 percentage point increase from the first estimate, has sparked considerable discussion and raised pertinent questions about the reliability and interpretation of economic data in India. The sheer magnitude of these revisions has made it difficult to reconcile the reported growth figures with other economic indicators and ground-level realities, leading to a sense of uncertainty and skepticism among economists, industry leaders, and policymakers alike. Former RBI Governor YV Reddy's observation that in India, even the past is uncertain, seems particularly apt in this context, as the constantly shifting GDP figures challenge the very foundation upon which economic analysis and policy decisions are based. The situation is further complicated by the fact that these revisions have occurred against a backdrop of broader economic trends and anecdotal evidence that suggest a more nuanced and potentially less robust picture of the Indian economy. While the headline GDP numbers paint a picture of strong growth, other indicators, such as private consumption, investment activities, and labor market data, present a somewhat conflicting narrative. This divergence between the official GDP figures and other economic indicators has fueled concerns about the accuracy and representativeness of the GDP data, as well as its usefulness for guiding policy decisions. Moreover, the revisions have implications for economic forecasting, as the constantly changing baseline makes it more challenging to project future growth rates and assess the effectiveness of government policies. The revisions to GDP data highlight the inherent complexities and challenges of measuring economic activity in a large and diverse country like India. The NSO, responsible for compiling and disseminating official statistics, faces numerous hurdles in collecting and processing data from various sources, including agriculture, industry, and services. These challenges are further compounded by issues such as data gaps, inconsistencies, and lags in reporting. While revisions to GDP figures are a normal part of the statistical process, the magnitude of the recent revisions has raised questions about the quality and reliability of the underlying data, as well as the methodologies used to estimate GDP. It is crucial for the NSO to address these concerns and enhance the transparency and credibility of its data collection and estimation procedures. This could involve improving data coverage, strengthening data validation processes, and adopting more robust statistical techniques. The credibility of economic data is essential for informed decision-making and effective policy formulation. When economic data is unreliable or subject to frequent and substantial revisions, it can undermine confidence in the government's economic policies and lead to misallocation of resources. Therefore, it is imperative for the NSO to ensure that its data is accurate, reliable, and timely, and that it is presented in a clear and transparent manner. Furthermore, the government should invest in strengthening the statistical infrastructure and capacity to improve the quality and coverage of economic data. This includes providing adequate funding for statistical agencies, training statisticians, and adopting international best practices in data collection and dissemination. By improving the quality and credibility of economic data, the government can enhance the effectiveness of its economic policies and promote sustainable and inclusive growth.
One of the key issues raised by the substantial GDP revisions is their potential impact on fiscal policy. The Indian government has been pursuing a path of fiscal consolidation, gradually reducing the fiscal deficit as a percentage of GDP. This strategy is aimed at reducing the government's debt burden and creating fiscal space for future investments. The recent GDP revisions, which have significantly increased the size of the economy, have also lowered the fiscal deficit as a percentage of GDP. For example, the Centre’s fiscal deficit was 6.4 per cent of GDP in 2022-23, 5.6 per cent in 2023-24, and 4.8 per cent in 2024-25. In the most recent budget it has pegged the deficit at 4.4 per cent in 2025-26. This raises the question of whether the government should continue to adhere to its existing fiscal targets or whether it should use the additional fiscal space to increase spending on infrastructure, social welfare programs, or other priorities. The answer to this question depends on the underlying strength of the economy. If the reported GDP growth is indeed an accurate reflection of the underlying economic momentum, then there may be less need for continued government support. However, if the reported growth is driven by statistical anomalies or other factors that do not reflect the true state of the economy, then the government may need to continue providing fiscal stimulus to support growth. The commentary from sections of India Inc during this period raises questions about the underlying strength of the economy, especially consumption. For instance, in October 2024, Nestle India chairman Suresh Narayanan also alluded to subdued consumption, saying that the “middle segment”, which is the key market for FMCG players, “seems to be shrinking”. Earlier in May 2024, during an earnings conference, Amit Syngle, managing director and CEO of Asian Paints, had said that “the GDP correlation has really gone for a toss, in the current year. I also feel that today, I am not very sure as to how the GDP numbers are coming.” Syngle added that “if you look at the core sectors, whether it is steel, cement, so on and so forth, nowhere it is correlating with the kind of possibly overall GDP growth in terms of what we are kind of talking of.” These concerns highlight the importance of looking beyond the headline GDP numbers and considering a broader range of economic indicators when assessing the health of the economy. It is also important to consider the distributional effects of economic growth. Even if the overall economy is growing strongly, it is possible that some segments of the population are not benefiting from this growth. For example, the labor market data suggests that the share of the workforce engaged in agriculture has increased in recent years, while the share of workers in the non-farm sector employed in informal enterprises has also risen. This suggests that many workers are still struggling to find stable and well-paying jobs. The average annual real wage growth in rural areas for the five years ending in 2023-24 works out to around -0.4 per cent as per a report in this paper. These trends only indicate weakness in labour markets, with fewer alternatives for more productive, more remunerative employment. Therefore, it is important for the government to focus on policies that promote inclusive growth and create opportunities for all segments of the population.
The Reserve Bank of India (RBI) also closely monitors GDP data and other economic indicators when making monetary policy decisions. The RBI's primary objective is to maintain price stability, which typically involves keeping inflation within a target range. To achieve this objective, the RBI uses various monetary policy tools, such as adjusting the repo rate (the interest rate at which it lends money to commercial banks). The RBI also uses forward guidance to communicate its intentions to the market and influence expectations. The recent GDP revisions have complicated the RBI's task of setting monetary policy. If the reported GDP growth is accurate, then the RBI may need to tighten monetary policy to prevent inflation from rising. However, if the reported growth is overstated, then the RBI may need to keep monetary policy loose to support economic activity. In its February meeting, the MPC had cut the repo rate by 25 basis points to 6.25 per cent. Data released a few days later showed that prices were trending lower — inflation had fallen to 4.31 per cent in January, from 5.22 per cent in December. As per analysts, inflation is expected to moderate further in February — this will be the last data before the next MPC meeting. With the central bank’s inflation forecasts indicating that real interest rates remain more restrictive than what is needed at this juncture, as some former MPC members have also argued in the past, and considering that there remains uncertainty over the underlying economic momentum, there is a growing possibility of further monetary easing. Therefore, the RBI needs to carefully assess the credibility of the GDP data and other economic indicators when making monetary policy decisions. The RBI also needs to communicate its intentions to the market clearly and transparently to avoid creating unnecessary uncertainty. Looking ahead, it is likely that the debate over the accuracy and reliability of India's GDP data will continue. The NSO needs to take steps to improve the quality and credibility of its data, and policymakers need to be cautious when interpreting the data and making policy decisions. It is also important to consider a broader range of economic indicators and to pay attention to the distributional effects of economic growth. By doing so, India can ensure that its economic policies are based on sound evidence and promote sustainable and inclusive growth. Furthermore, enhanced transparency and public discourse around the methodologies and data sources used in GDP estimation will contribute to building trust and understanding among stakeholders. This collaborative approach will strengthen the foundation for informed economic decision-making and contribute to India's long-term economic prosperity.
Source: In Our Opinion: When economic data increases uncertainty