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IMF flags issues with India's GDP calculation method; says it's complex

The International Monetary Fund in its latest report has pointed out discrepancies in calculating deflation, which is used to convert GDP at current prices to constant prices

twitter-logo BusinessToday.In   New Delhi     Last Updated: January 9, 2020  | 14:50 IST
IMF flags issues with India's GDP calculation method; says it's complex
The Modi government had faced flak over the back series data on the base year of 2011-12 after a NSC report in 2018 showed double-digit growth during UPA

The International Monetary Fund (IMF), in its annual staff report on India released Monday, raised doubts over India's methodology to calculate gross domestic product (GDP) numbers, saying certain changes to historical series and discrepancies between GDP by activity and GDP by expenditure have made the growth calculation process complex.

Notably, the Modi government had faced flak over the back series data on the base year of 2011-12 after a National Statistical Commission's (NSC) report in 2018 showed double-digit growth during some years of the UPA government. The Centre had then junked the report, only to later come up with its own GDP back series data, which lowered the growth rate under the UPA government. The issue had raised a lot of political dust with the Congress and the Opposition leadership seeing it as an effort to discredit the previous government's 'good' work.

The IMF in its latest report has pointed out discrepancies in calculating deflation, which is used to convert GDP at current prices to constant prices. The body said the compilation of constant price GDP using WPI (Wholesale Price Index) as a deflator instead of PPI (Producer Price Index) for many activities makes the process complex, as it can't capture certain services uniformly.

The IMF also asserted that India is now in the midst of a significant economic slowdown, and urged the government to take urgent policy actions to address the current prolonged downturn. The report said though India's rapid economic expansion in recent years lifted millions of people out of poverty, a combination of factors led to subdued economic growth in India in the first half of 2019.

Also read: India's real GDP growth in FY20 to be below 5%; revival steps to take time to filter through economy: IHS Markit

"The deceleration of consumption and investment was exacerbated by weaknesses in the non-bank financial sector and corporate and environmental regulatory uncertainty. Weak demand in conjunction with continued low food prices-thanks to successive normal monsoon rainfall and agricultural sector reforms-caused average inflation to moderate to a multi-year low of 3.4 per cent in FY2018/19," the report said.

"The issue in India currently is the growth slowdown. We still believe it is mostly cyclical, not structural... because of the financial sector issues, we think, the recovery will be not as quickly quick as we thought earlier. That's the main issue," Ranil Salgado, Mission Chief for India in the IMF Asia and Pacific Department told PTI.

With risks to the outlook tilted to the downside, the IMF Directors called for continued sound macroeconomic management. They saw an opportunity with the strong mandate of the new government to reinvigorate the reform agenda to boost inclusive and sustainable growth. The staff report was done in August when the IMF was not fully aware of India's current economic slowdown. "India is now in the midst of a significant economic slowdown," Salgado said.

IMF Directors commended the authorities' concerted efforts to strengthen the business climate in India. These efforts need to be complemented by continued labour, product market, land, and other reforms aimed at increasing labour market flexibility, enhancing competition, and reducing the scope for corruption, which will help harness India's demographic dividend, the report said.

Also read: IMF economist Gita Gopinath hints India's dream to achieve $5 trillion economy doubtful

Also read: India must be more transparent on fiscal numbers: IMF

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