Chief Economic Adviser V Anantha Nageswaran
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SaiSen/Mint

Questions have been raised by some commentators over the veracity of the first quarter FY27 GDP data released by the Centre on Monday. businessline caught up over phone with Chief Economic Adviser V Anantha Nageswaran, who’s travelling in the US, to understand the correct picture. Edited excerpts:

There is criticism that the real GDP growth in the first quarter of this fiscal is not 7.8 per cent but just 2.6 per cent. This is based on a comparison of last year’s first quarter GDP of ₹86 lakh crore with the current year’s first quarter GDP of ₹88 lakh crore. Is this criticism valid?

The ₹86 lakh crore first quarter GDP estimate of last year was based on the old base year and the old methodology. So, how can you even compare that?

If you want to compare ₹86 lakh crore, you have to estimate a number that would have been the case had the old series continued and the old methodology continued. That number could be in the mid-90s. Then you can compare. But you are taking ₹86 lakh crore, which was under 2011-12 base year, and under the old methodology, and then taking the new number of ₹88 lakh crore under the 2022-23 base year under the new methodology, and arriving at 2.2 per cent or 2.3 per cent nominal GDP growth, which is completely unsustainable. You have to have a common platform, common basis to compare numbers.

When the Ministry of Statistics came up with the new base year and the new methodology in February, they had already lowered the full year GDP for India for FY26 from ₹357 lakh crore to ₹345 lakh crore. At that time nobody had any idea about the Persian Gulf conflict or how the first quarter numbers would pan out, etc. So, this is not something that was pulled off only to show a 10 per cent nominal GDP growth.

Was the use of double deflator the only reason behind the downward revision of last year number, or were there other reasons?

There are multiple reasons. It is very difficult to spell them all out. Mospi (Statisics Ministry) had put them out. When you have better methodologies, better coverage, more number of items that are being sampled… there are many reasons and it is difficult to list them. So, yeah, more coverage of items, better methodologies, double deflation. And then a lot of things were imputed under the old methodology.

Now, we have the data. So, there are a combination of reasons. India has actually brought down the nominal GDP in the revised estimate for FY26 by about ₹11 lakh crore. This happened in February. So, obviously, it is very clear that we are not using the excuse of a methodology revision and a base year revision to bump up our numbers.

Changes can happen in either direction. In some cases, in fact, I would say, if we were not covering a particular sector well at all, such as informal economy, and now we cover them much better, then in fact, GDP numbers would go up. The fact that we didn’t have an upward revision to India’s FY26 GDP numbers under the new methodology shows that we were actually doing a fairly good job of covering all sectors of the economy.

Naturally, we use formal sector estimates to impute numbers for the informal sector, but we were doing that quite well. Otherwise, many countries when they improve the methodology, they increase the numbers saying that some sectors were not previously well covered. That is not the case in India. So, if anything, this shows the rigour of the approach that has been followed.

So, is the double deflator approach a statistically superior method, or is it just that we are using it because multilateral agencies and the United Nations have prescribed that?

It is obviously both factors at work here. First of all, it is a prescribed methodology. Obviously, such a prescription wouldn’t have happened had it not been for the fact that just like in India, there are lots of statistical experts who go through these approaches and then recommend that this is the more reliable and more accurate way to capture what is going on in the economy. That is how it becomes part of the suggested method by multilateral agencies and many countries follow it. So, the prescription itself doesn’t arise in a vacuum.

And double deflator, especially in manufacturing, has one separate for input and one separate for output. That is the case. In fact, it makes intuitive sense as well. When input prices go up, it is not always possible that output prices would rise in the same proportion. Companies may not be able to raise the prices. Or if they are in a very demand intense growth phase, they may be able to even raise the output prices much more, etc. So, there is no point in using the same deflator for both.

The dynamics governing both of them could be very different. In the case of India, many input prices come from overseas markets. Whereas the output prices are governed by domestic economic dynamics. So, it makes sense even intuitively to have double deflator method. We were not able to do that. Now we have done that and that is a good development.

Source: Read the original article on www.thehindubusinessline.com