How to measure India’s growth

How to measure India’s growth

Subject :Economy

Section: National income

Key Points:

• While the recently released economic growth numbers for India are promising, there is some sub-text that needs to get the correct and more realistic picture of India’s economic performance.
• Some of the major concers are:  inflationary pressures, a falling rupee, fluctuations in tax revenue streams and an apprehensive outlook on the agriculture sector in Q1 FY24,
• Thus a reading of the Indian growth story   based just on quarterly numbers may be ignoring some major concerns.
• The Q1 data covering the GDP growth rate from April to June of FY24 boasts a nominal growth rate of 8% and a real growth rate of 7.8%. These are calculated by the National Statistics Office (NSO).

The major issues are as follows:

• NSO made use of the income approach of calculating GDP rather than the expenditure approach. The assumption generally is that both methods lead to similar results.  expenditure approach dictates headline growth to be 4.5% rather than 7.8% which is a large discrepancy.
• Another essential statistical operation is the adjusting for inflation using the price deflator. In this case, deflation due to falling commodity prices, reflected in the wholesale price index, has worked to overstate the real growth. 
• There is also the problem of a base effect from the COVID-19 degrowth period,
• Further future worries are there regarding inflation and a weakening rupee, and revenue concerns:
  • It is doubtful if the inflation rate calculated through the consumer price index can be sustained at current levels with the impending depreciation of the Indian rupee.
  • Ruppe depreciation against the dollar is due to capital outflow pressures resulting from the RBI’s reluctance to raise interest rates.
  • India is a net importer, and its most significant import consists of crude petroleum, whose price seems to be rising due to Saudi’s $100 per barrel push and rupee depreciation.
  • Moreover, the government’s tax revenue from direct taxes has weakened over the previous quarter while the indirect tax revenue remained strong, indicating a K-shaped pattern.
  • The income streams from progressive taxation (more significant tax burden on those higher on the income ladder) seem to be a laggard compared to its regressive counterpart
  • Direct and personal taxes should (in the absence of any significant policy changes) have grown closer to the nominal growth rate than it has currently.