HOUSE OF CARDS

At 8.4%, India’s GDP surpassed the expectations of analysts of almost all dispositions. But are GDP numbers hiding a bleaker story? It is not just the missing private money, there are more devils in the story

- Parth Singh

India's gross domestic product (GDP) growth rate for the December quarter of the fiscal year 2023-24 has astounded observers, reaching 8.4%, a figure that even the Reserve Bank of India was not expecting. Currently when eurozone economies are stagnant and China, the second-biggest economy, faces headwinds, India's growth is perhaps the only bright spot in a world racked by geopolitical tensions.

"Robust 8.4% GDP growth in the third quarter of 2023-24 shows the strength of Indian economy and its potential. Our efforts will continue to bring fast economic growth which shall help 140 crore Indians lead a better life and create a Viksit Bharat," Prime Minister Narendra Modi posted on X (formerly Twitter).

There has been considerable debate regarding the reliability of GDP data in recent quarters, with critics suggesting potential inflation through methodological jugglery.

The latest data sets have received similar criticism, with some pointing to the disparity between gross value added (GVA) and GDP.

While GDP is a measure of the total value of goods and services produced within a region's borders, GVA is the value producers add to the goods and services they buy, and thus provides an insight into the raw economic output within the country.

Mathematically, GVA is calculated by adding subsidies to the GDP and subtracting indirect taxes (GST).

In the December quarter of 2023-24, the disparity between India's GDP and GVA figures reached a 10-year high. During the recent quarter, while India recorded a GDP growth rate of 8.4%, its GVA grew by only 6.5%-reflecting a significant divergence of 190 basis points.

"The wide gap [between GVA and GDP numbers] follows from a surge in growth of net indirect taxes to a six-quarter high of 32% in this quarter, which is unlikely to be sustainable," says Aditi Nayar, chief economist at ratings agency, ICRA.