Daijiworld Media Network- Mumbai

Mumbai, Jan 10: The first advance estimates of India’s Gross Domestic Product (GDP) for 2024-25, released by the National Statistics Office (NSO), indicate a decline in real GDP growth to 6.4%, down from 8.2% in 2023-24. This figure falls short of the 6.5% to 7% growth range projected in the Economic Survey of July 2024. Additionally, nominal GDP growth, which combines real GDP growth and overall inflation, is expected at 9.7% for 2024-25, considerably below the 10.5% forecast in the previous Union Budget.

Data discrepancies and concerns

Despite the official reduction in growth projections, experts argue that the estimates may understate the severity of the economic slowdown. Academics and institutions like the International Monetary Fund (IMF) have flagged persistent issues with India’s GDP data. The IMF’s 2023 Staff Consultation Report highlighted shortcomings, such as the reliance on the Wholesale Price Index (WPI) as a deflator for GDP components. This practice deviates from international norms, which recommend using the Producer Price Index (PPI) to ensure consistency with national accounts.

Furthermore, significant revisions to historical data, a short time span for the revised series, discrepancies between GDP measured by activity and expenditure, and the absence of seasonally adjusted quarterly GDP figures compound the analytical challenges. These gaps hinder accurate tracking of high-frequency trends in India’s economy, especially from the demand perspective.

The role of GDP deflators

Real or constant price GDP estimates rely on a GDP deflator to convert nominal values to constant prices. India’s GDP deflator combines wholesale and retail price indices. However, the WPI has shown considerable volatility in the past decade, leading to stark differences between WPI and CPI inflation rates. This discrepancy raises questions about the accuracy of the GDP deflator and, consequently, real GDP estimates.

For instance, while nominal GDP growth declined sharply from 14.2% in 2022-23 to 9.6% in 2023-24, real GDP growth appeared to accelerate from 7.0% to 8.2%. This anomaly resulted from a significant drop in the GDP deflator to 1.4% in 2023-24, even as retail inflation remained at 5.4%. The decline in the WPI inflation rate—from 9.4% in 2022-23 to -0.7% in 2023-24—further distorted the deflator. Consequently, nominal GDP suggested a deceleration in 2023-24, while real GDP indicated an acceleration, creating a misleading picture of economic fundamentals.

Such inconsistencies undermine the reliability of macroeconomic data, increasing the risk of policy errors and economic misjudgements.