Indian growth will skyrocket to 8 per cent this year — but not because of record output.
When the new Modi administration reveals its first full-year budget later this month it will reflect a surge in growth (currently 5.5 per cent) — because the statistics ministry just completely changed the way it measures the data.
What does that mean? No one’s really sure.
Finance Minister Arun Jaitley and his team are reportedly scrambling to plug in the new numbers before they reveal the budget in a few weeks. And central bank governor Raghuram Rajan has publicly stated that he doesn’t understand the new calculations.
According to The Wall Street Journal, the revisions include a different base year for price changes and a new way of calculating GDP (at market price rather than factor cost). The idea is to better conform with international standards. And the fact that it puts India’s growth rate much closer to China’s was probably not a deterrent.
But all the changes have succeeded in doing so far is confuse economists, who, Reuters noted, think it fails to reflect the pretty weak state of India’s economy right now.
Industrial production and exports have been sluggish there, and Capital Economics economist Shilan Shah recently noted that “local industry is struggling to gain any momentum and is doing very little, if anything, to eat into spare capacity.”
For now, economists are saying it’s pretty much impossible to make predictions for the next quarter, because the revisions haven’t even been applied to the existing quarterly data.
It’s also going to be tougher to gauge whether Rajan, who recently gave into repeated calls to cut interest rates, will have room to loosen monetary policy any further.
But he will probably revise his 5.5 per cent forecast for the current fiscal year — once he’s had time to work through the new numbers.