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Friday 18 Aug 2017 | 17:12 | SYDNEY
Friday 18 Aug 2017 | 17:12 | SYDNEY

Is India growing as fast as China?



2 February 2015 14:02

Well, that was a surprise. On Friday, the Indian Press Information Bureau sent out a press release advising that GDP growth for 2013-14 has been revised. It used to be 4.7%. It is now estimated to be 6.9%. That's a big move up.

The revision actually comes from two changes. First, India's Ministry of Statistics and Programme Implementation has changed the base year. This means it has changed the prices used to calculate real GDP. It had previously used prices from 2004-05; now it is using prices from 2011-12. This change looks like it accounts for most of the difference.

The second change has to do with the actual measure of GDP. Up to now, GDP in India was typically calculated on the basis of 'GDP at factor cost'. India will no longer use this terminology, and will instead be calling GDP what hitherto it had called 'GDP at market prices'.

But there is a twist in the tail. GDP at market prices includes an item called 'Taxes on products' and excludes and item called 'Subsidies on Products'. Ordinarily this would be a good thing, as it would bring India's GDP accounting into line with the international community. However, there is a big problem with the way the Ministry of Statistics and Programme Implementation calculates real subsidies. It takes the nominal amount of subsidy paid and deflates it using the GDP deflator.  The reasons behind why this is the wrong thing to do are quite technical, so I won't go into them now. However, it is wrong and India should instead use the price of the goods they subsidise as the deflator.

The upshot is that Indian GDP statistics just became harder to interpret. But if we were to take these numbers at face value, then India is growing almost as fast as China. India could be the next hot economy. These revisions have made me more optimistic that the future is indeed bright, although I remain cautious

Photo by Flickr user Ryan.

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