India’s GDP Growth: Fudged or Real?

India's GDP Growth: Fudged or Real? 1

Recent Announcement of Growth in India’s GDP

Our government has recently announced that India’s Gross Domestic Product has grown from 7.2% in the December 2015 quarter to 7.9% in the March 2015 quarter.  Though this apparent growth should be a reason for celebration, the statistical picture that is presented does not match with the ground realities.

Ground Truths

  • Gross fixed capital formation, that is the net increase in physical assets or simply investment, is decreasing (Q2-32.9%,Q3-29.9%,Q4-29.4%)
  • Gross fixed capital formation in Q4 is down by Rs 17,197 crores or has decreased by 1.9%

Government expenditure in comparison of the 4th Quarter of 2015 has declined by 440 crores.

What is the reason of the Growth

With the decline in investment the question now arises that are we having an investment less growth. The Q4 data highlights two very important factors:

  • Private final consumption as shown a hike from Rs 71.93 lakh crores in 2014-15 to Rs 80.76 lakh crores in 2015-16.  A huge part of this increase is attributed to the huge rise in government wages and pensions.
  • On the other hand Credit growth has declined from 9.1% to 8.4% due to a decrease in industrial credit demand. This implies that the growth is being mainly driven by sections of the population whose income has had a sharp hike.

Difference between GDP and GDI

  • GDP measures the sum total of the  country’s final expenditure.
  • GDI (Gross Domestic Income) is the country’s total output.
  • In theory GDP and GDI should be equal, in reality they are different as their components are measured using imperfect data sources.

What is Discrepancy?

In National Income Accounting the difference between the GDP and GDI is called statistical discrepancy and this the factor that balances GDP and the GDI

Official Fudge Factor

This statistical discrepancy is considered as the official fudge factor by economists. The manipulation in the measuring process of the GDP and the GDI  help the government to balance the discrepancy between them. This manipulative process of computing the GDP results in projecting an apparent economic growth. This is a very smart procedure that is utilized by the government to show off their worth and capability.

The Positive Factor

There are also some positive sides in our present economic growth

  • According to the latest corporate results profits are rising. The Financial Express showed that Q4 profits rose by 42%, while sales rose only by 4.2%.
  • A CRISIL study for the 2015-16 financial year tracking 72% of the National Stock Exchange shows that profit rose by 16.7% while revenues only rose by 2.5%
  • The prospects for investment are higher as the Q4 Corporate profits promises a smart upturn.

  • Moreover the Meteorological Department states that there is “zero chance” of deficient rains.
  • Government may come and go, but it is the monsoon that determines the economic outcome of India

Leave a Reply

Your email address will not be published. Required fields are marked *