CSO estimates overstate GDP: analysts

Gap in methodology arose from the use of smaller-than-appropriate weights for CPI

The Central Statistics Office’s GDP figures released on Tuesday overstates the extent of growth, according to analysts. A number of statistical deficiencies plague the data, they said. The main issue is that not all of the growth that the figures show is on account of real growth. Much of it is purely on account of the increase in prices, which ought to have been deflated out adequately. According to HSBC Global Research the gap in the methodology arose from the use of smaller-than-appropriate weights for consumer price inflation in the GDP deflators. It found that correcting the consumer- and wholesale-prices mix in the deflators, giving them equal weights, suggests India’s Gross Value Added (GVA) grew 6.2 per cent in the January-March quarter, slower than the official estimate of 7.4 per cent.

“Price changes that boost nominal earnings are being ascribed to real growth,” JP Morgan Research wrote in a note to clients. “Much of the value-added is because of input prices falling more than output prices (i.e., nominal margins being boosted), which needs to be deflated out.” The faulty approach can be seen in the manner manufacturing value-added was deflated.

Input prices

Input prices are falling more than output prices, boosting the nominal margins, and inflating much of the value-added in the manufacturing sector. In the absence of adequate deflation, manufacturing growth was exaggerated, wrote HSBC Global Research.

CSO data put real manufacturing growth at 9.3 per cent in the January-March period. This was at odds with the IIP data for the same quarter, which showed a mere increase of 0.2 per cent, JP Morgan wrote. Similarly, inadequate deflation also affected the way tax changes were incorporated into the GDP data. It led to overestimation of taxes, which drove the GDP well above the GVA. GDP is calculated as a sum of GVA and indirect taxes from which the value of product subsidies is deducted. The difference in the GDP and GVA growth estimates is striking; it widened to 0.4 per cent from 0.1 per cent in the previous financial year. Separately, data show that contraction in exports is slowing, according to HSBC.