The Indian government announced it was revising it’s economic growth figures for the fourth quarter of 2014 upwards on Monday, applying a new statistical methodology. Based on the new method, India’s economic growth in the last quarter was a robust 7.5%, eclipsing China’s 7.3% growth rate.
Even given the new statistical methodology, these new figures suggest a strong turnaround for an economy that just a few weeks ago seemed to be struggling under Prime Minister Narendra Modi’s reform-minded government. Until quite recently, the Indian economy had been going through its weakest growth since the 1980s.
Analysts note that the Indian economy’s “statistical recovery” is largely due to the new method by which Indian central bank authorities calculate both gross domestic product and the base year.
India also revised 1H forecast upwards
Of note, the Indian government also revised its growth for the first half of fiscal 2014/15 to 7.4% from the 5.5% prior forecast, and projected that full-year GDP growth would ramp up to 7.4% from a revised 6.9% a year earlier.
The new estimate is much higher than the Reserve Bank of India’s projection of around 5.5% annual growth using the old method.
More on the new method
With its new method, India is measuring GDP by market prices instead of factor costs, with the goal of including both gross value addition in goods and services as well as indirect taxes. Moreover, the base year has been moved to 2011/12 from 2004/05.
According to the statistical department of the Indian government, the new method is much closer to typical global practices and provides a more accurate representation of economic activity.
Economists scratching their heads
The revised data has left many economists scratching their heads as it does not jibe with other indicators such as industrial production, trade and tax collection figures, all of which indicate a sputtering economy.
“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,” noted A. Prasanna, economist at ICICI Securities Primary Dealership Ltd. “That means either one part of the economy is not taxed or there is an issue with the data.”