Govt rejects GDP criticism, expects ‘informed debate’ once methods understood

Why in the News

The Ministry of Statistics and Programme Implementation (MoSPI) has issued a six point rebuttal asserting that its methods and its recently released quarterly numbers are correct. Data showed India’s Gross Domestic Product (GDP) grew 7.8 per cent in April to June, significantly higher than the Reserve Bank of India’s forecast of 7 per cent. Economists, former bureaucrats and politicians then questioned the figure, one claim putting nominal growth at 2.6 per cent and real growth “close to 0”. The dispute turns on a single technical point. A number from the old 2011-12 base series and a number from the new 2022-23 base series are being compared with each other, and the ministry’s position is that they cannot be.

What is double deflation?

1. Gross Value Added, first: To find the value added by a sector, the value of the inputs it uses is subtracted from the value of the output it produces. This gives Gross Value Added (GVA) in current prices, or nominal terms.
2. Deflating twice: To reach real GVA, the output value and the input value are each adjusted by their own inflation rate rather than by a single common rate.
3. Why a single rate distorts: Deflating inputs and outputs by the same number is problematic when input and output prices change at different rates, which is exactly when a sector’s real growth is hardest to read.

What did the criticism of the quarterly numbers claim?

1. The deflator objection: Some economists were unconvinced by the figure used to deflate the manufacturing sector’s GVA in current prices to arrive at the inflation adjusted estimate.
2. The growth rate claim: A former Finance Secretary argued that nominal GDP growth for April to June should be 2.6 per cent, and in real terms close to zero.
3. The allegation of manipulation: The same critic claimed that April to June 2025 nominal GDP was revised down from Rs 86 lakh crore to Rs 80 lakh crore in order to make growth in April to June 2026 look better.

How did the statistics ministry answer the comparison?

1. The two figures sit in different series: The ministry pointed out that the Rs 86.05 lakh crore figure belongs to the old GDP series, which had 2011-12 as its base year.
2. The revision has a stated cause: The move to Rs 80.00 lakh crore in the new series arose from successive revisions to the GDP series following the change in base year, the incorporation of improved data sources and methodologies, and the updation of available indicators.
3. The inference is rejected: The ministry held that it is “incorrect to interpret the difference as a deliberate downward revision of last year’s GDP to mechanically increase the current year’s growth rate”.
4. The method objection: One cannot compare GDP numbers drawn from different series to arrive at a growth rate, which is what the critic had done.

What changed in the new GDP series?

1. A new base year: The series with 2022-23 as its base was released in February this year, bringing in new sources of data and several methodological changes in the calculation of GDP.
2. Long sought changes: Those changes include ones that economists and international agencies such as the International Monetary Fund (IMF) had been calling for over several years.
3. Double deflation extended to all sectors: Before the new series, MoSPI applied double deflation only to agriculture and to mining and quarrying, deflating every other sector’s inputs and outputs by the same number using the Wholesale Price Index and the Consumer Price Index.
4. A finer deflator set: The Producer Price Index now supplies more than 300 deflators for different parts of GDP, up from around 180 under the old series, which makes the new estimates more accurate.
5. Other inputs behind the revisions: The updated Index of Industrial Production series and the Banking Services Price Index released earlier this year also fed the revisions, including the January to March growth rate being raised from 7.8 per cent to 8.6 per cent.

Conclusion

The disagreement is not about whether the economy grew. It is about whether a statistical office is entitled to change its base year, its data sources and its deflation method at the same time, and then publish a growth rate against a back series it has itself rebuilt. The ministry’s answer is that comparability lives within a series and not across two of them. The test of that answer is transparency, and what to watch is whether the full back series on the new base is published in a form that lets an outside statistician reproduce the quarterly numbers independently.

Back2Basics: Producer Price Index

1. What it measures: A Producer Price Index tracks the average change over time in prices received by domestic producers for their output, measured at the factory gate.
2. How it differs from the Wholesale Price Index: It excludes trade margins, transport costs and indirect taxes, so it reflects the producer’s own realisation rather than the price at which a good changes hands in wholesale markets.
3. Why it suits deflation: It covers services as well as goods, which a wholesale price measure does not, so it can deflate sectors a goods only index cannot reach.
4. Status in India: India has worked towards a PPI on the recommendation of an official working group, with the wholesale index historically serving as the main producer side price measure.

Matching Previous Year Question

“[2021, GS3, 10 marks] Explain the difference between computing methodology of India’s Gross Domestic Product(GDP) before the year 2015 and after the year 2015.”