The Finance Ministry on Saturday dismissed allegations of discrepancy between the income and expenditure approaches, which are used to calculate India”s GDP. This was in response to allegations of misrepresentation of the Q1 FY 2024 GDP, raised by many. Rejecting the concerns, the ministry reiterated that real GDP growth for Q1 FY24 stood at 7.8% year-on-year, based on the income or production approach.

Taking to X (formerly Twitter), the Finance Ministry maintained its stand on the real GDP growth estimate and the deflator used to calculate it.

“India”s real GDP growth was 7.8% y/y (year on year) in Q1 FY24 (first Quarter of FY 2023-24). This is as per the Income or Production Approach. As per the expenditure approach, it would have been lower. So, a balancing figure – statistical discrepancy – is added to the expenditure approach estimate. These discrepancies are both positive and negative. Over time, they wash out,” said the Ministry of Finance in its X post on Friday.

Expressing annoyance over the debate, the Finance Ministry said, “New bogey being spread to indicate that economic activity is quite weak.” The finance ministry argued that India has been depending on the income side approach for calculating the GDP growth for various reasons and cannot swap it with other approaches based on which one is favorable.

“In fact, in FY23 and FY22, the “statistical discrepancy” was negative. In other words, growth as per the Income Approach was lower. Using the expenditure approach, it would have been higher than the 7.2% reported for FY23 and higher than the 9.1% reported for FY22,” it said.

The finance ministry took a call on this after Princeton University professor Ashok Mody wrote an article in an international publication condemning the Indian government of conducting a “branding and beautification” exercise on its GDP numbers to make them look better in the run-up to the G20 summit.

Issues have been raised by certain sections with respect to the Indian GDP data. In this regard, with a view to bring clarity on issues raised w.r.t. the Indian GDP data, it is stated that:
 
1️⃣ India’s real GDP growth was 7.8% y/y (year on year) in Q1 FY24 (first Quarter of FY…

— Ministry of Finance (@FinMinIndia) September 15, 2023

“Both measures clearly have many errors. The NSO nonetheless treats income as the right one and assumes (as implied by its “discrepancy” note) that expenditure must be identical to income earned. This is an obvious violation of international best practice,” Mody had noted.

The finance ministry said that India”s GDP data are not seasonally adjusted, and they are also revised multiple times before they are finalized three years after the close of the relevant financial year. “It is wrong to look at the underlying economic activity based on GDP indicators alone. Higher frequency data must be relied upon to form a view of the strength of the economic activity,” it said.

“Many International agencies have revised up their growth forecast for FY24 after the first quarter data for FY24 was released. They would not have done so if the underlying economic activity was weak,” it said.

Moreover, on the nominal GDP slowdown, the finance ministry said that the statistics ministry calculates quarterly GVA (gross-value added) in real terms first, and then, using the deflator, nominal values are obtained. Since Wholesale Price Index has a larger share in India”s GDP deflator, its year-on-year contraction since April has led to a slowdown in the nominal GDP rate. “This will normalize in the coming months,” the finance ministry said.

India”s nominal GDP had reached 8.0% in Q1 FY24 from 10.4% in Q4 FY23. However, the real GDP jumped to 7.8% from 6.1% in the same period. The Budget has estimated that India”s nominal GDP would grow to 10.5% year-on-year in FY24. And the projected real GDP growth is 6.5% in the current fiscal year, according to the Reserve Bank of India.

“So, arguing that nominal GDP growth is more reliable because India has issues with its calculation of GDP deflator is to invent an argument where none exists,” the finance ministry said.

“Ideally, critics would have done well to look at several other growth indicators to see if other data match their conclusions. Purchasing Managers” Indices indicate that the manufacturing and services sectors are growing. Bank credit growth is in double digits. Consumption is improving, and the government has vigorously ramped up capital expenditure,” it noted.