India becomes fastest growing economy

The official figures, however, are at odds with other indicators such as industrial production and trade data, which suggest the economy is still suffering from slack.

The wonderful growth rate that baffled both policy makers and economists is just because the CSO revised the base year on which comparisons are made from 2004-05 to 2011-12 and tweaked data from the sectors not so far included in the calculations. The economy expanded 8.2 per cent in the quarter ended December 31 quarter under the new method.

The estimate released by CSO is sharply higher than the Reserve Bank of India’s (RBI) growth projection of around 5.5 per cent under the old method as well as a revised 6.9 per cent growth a year earlier as it shows India to be a $2 trillion economy.

The first two quarter numbers were also revised from 5.85 per cent to 6.5 per cent for the April-June quarter and from 6.04 per cent to 8.2% for the July-September quarter under GDP at market prices method

At 8.2 per cent growth in the quarter ended December, India even outpaced China’s 7.3 percent growth in the latest quarter to become the fastest growing major economy in the world.

India now measures GDP by market prices instead of factor cost, to take into account gross value addition in goods and services as well as indirect taxes.  

The revisions mark a dramatic turnaround for an economy that barely a fortnight ago was assumed to be still struggling to gather momentum under Prime Minister Narendra Modi’s reform-minded government. Prior to Modi’s election last May, the economy had endured its weakest phase of growth since the 1980s.

The apparent recovery is, however, in large measure due to changes both in the way authorities calculate gross domestic product (GDP) and the base year.

Reuter quoted A Prasanna, economist at ICICI Securities Primary Dealership Ltd, questioning the credibility of the data and asked the government to explain glaring gaps. 

“The government has itself been saying that tax collections are slow due to a slowdown in the economy, but the other wing of the government is saying that GDP growth has been good,” he said. “That means either one part of the economy is not taxed or there is an issue with the data.”