India’s 7.8% GDP growth wins IMF backing as new data system faces scrutiny

Highlights:

• IMF welcomes India’s efforts to modernize economic statistics.
• New IIP and PPI series are expected to improve GDP estimates.
• India’s real GDP grew 7.8 per cent in the June quarter.
• Services and exports drove the stronger-than-expected growth.
• Opposition parties have questioned the credibility of the latest data.

India’s efforts to modernize its statistical system have received support from the International Monetary Fund (IMF), even as a political and economic debate continues over the credibility of the country’s latest GDP figures.

Julie Kozack, director of the Communications Department at the IMF, said the incorporation of updated economic indicators into India’s latest GDP release should help improve the accuracy of national growth estimates.

“The latest GDP release that we just talked about incorporated both a new index of industrial production, and a new producer price index series, and those two new series should help improve India's GDP estimates,” Kozack said in response to a question from PTI.

She added that the IMF welcomed the steps being taken by Indian authorities to modernize the country’s macroeconomic statistics and encouraged further improvements in data quality and the broader statistical framework.

IMF welcomes changes to India’s data system

Kozack said the IMF supported India’s efforts to strengthen the way economic data is collected and incorporated into national statistics.

“We, of course, encourage the authorities to continue to further strengthen the statistical framework and data quality along the lines that they're progressing,” Kozack said at the IMF’s monthly briefing in Washington.

The comments come at a time when India’s latest GDP numbers have faced scrutiny from economists and opposition political parties.

The updated Index of Industrial Production (IIP) and Producer Price Index (PPI) are intended to provide additional and more relevant information for measuring economic activity. According to the IMF, their inclusion should contribute to more accurate GDP estimates.

India’s economy grows 7.8 per cent

India’s real GDP grew 7.8 per cent in the second quarter, according to the latest government figures. Kozack said the result was higher than both IMF staff expectations and the broader consensus among observers.

“This upward surprise was driven by stronger-than-expected activity in the services sector, and also in exports,” Kozack said.

The IMF also viewed the latest growth performance as evidence of resilience in the Indian economy despite external pressures, including higher energy prices.

“I think what we would say is the outcome also highlights the resilience of the Indian economy, despite the energy price shock. And it also means that, as we've been saying for quite some time, India does remain a key growth engine for the world,” the IMF official said.

The assessment reinforces the IMF’s broader view of India as an important contributor to global economic growth.

Political row over GDP figures

The strong GDP figures have nevertheless triggered a political dispute in India.

Former Finance Secretary S C Garg challenged the government’s data, arguing that the reported growth rate was affected by revisions to the previous year’s figures.

Garg claimed that current-price GDP for the previous year had been reported at Rs 86 lakh crore before being revised to Rs 80 lakh crore. He argued that without the revision, the June-quarter growth rate would have been only 2.6%.

Opposition parties subsequently cited his claims while questioning the reliability and integrity of the government’s GDP calculations.

Chief Economic Adviser V Anantha Nageswaran rejected the criticism, describing Garg’s approach as “cherry-picking” of data.

Nageswaran explained that the latest GDP estimates were prepared using the financial year ending in March 2023 as the new base. The change in the base year and methodology resulted in revisions to quarterly data from the previous year.

The IMF’s response does not directly settle the domestic debate over India’s GDP methodology. However, its endorsement of efforts to modernize the statistical framework indicates that the introduction of newer data series is viewed as a positive step toward improving the quality and reliability of India’s economic estimates.