8.2 growth puzzle: What the data misses about ground reality

India’s latest GDP data shows a surprising 8.2 per cent growth rate, far higher than the 7.3 per cent expected by most economists. While strong performance in manufacturing and services is being credited for this jump, several inconsistencies in underlying data have raised questions about the credibility of the numbers.

GDP growth exceeds all forecasts

Prasanna Mohanty, Business Editor at The Federal, explains that the new GDP numbers “have surprised everyone” because they exceeded all forecasts. The first quarter had shown a similar pattern, with growth rising from an expected 6.5 per cent to 7.8 per cent.

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Services have traditionally driven India’s economic momentum, but this time manufacturing has emerged as the unexpected booster. However, the enthusiasm surrounding this sector comes with significant concerns.

Manufacturing mismatch

Industrial production data tells a different story. Manufacturing GVA is shown as 7.7 per cent in Q1 and 9.1 per cent in Q2, yet the Index of Industrial Production for manufacturing is almost half of these figures. Core infrastructure industries are performing even worse.

Mohanty notes a “clear mismatch between the manufacturing GVA that the GDP numbers provide and the manufacturing production from the production activities".

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Adding to the puzzle, recent reports say foreign companies have dropped Rs 2 lakh crore worth of projects in India. Another business publication reported that previously-declared and sanctioned investments fell for the fourth consecutive quarter in September, amounting to Rs 14.3 lakh crore and surpassing even the worst levels seen in FY19. These developments deepen doubts about whether the reported manufacturing surge reflects ground reality.

Weak consumption

Consumption, which contributes about 60 per cent to the GDP, is also slowing. In both the first and second quarters, growth in consumption remained far below the overall GDP growth rate. Mohanty flags this as another red signal for the economy.

Rising discrepancies in data

A large part of the concern stems from discrepancies between the production and expenditure sides of GDP, ideally expected to remain between 1 and 1.5 per cent. Instead, Q2 discrepancies stand at 3.3 per cent and Q1 at more than 2 per cent.

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Mohanty points out that the previous two quarters recorded negative discrepancies of minus 3.1 per cent, adding to volatility. Such large swings, he says, “always raise doubts about the credibility of GDP data".

Long-standing concerns

Questions about the accuracy of India’s GDP numbers are not new. Former Chief Economic Adviser Arvind Subramanian had earlier estimated that India’s GDP growth between 2012 and 2017 may have been overstated by 2.5 to 3.7 percentage points annually.

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Mohanty concludes that high manufacturing GVA despite weak production, low consumption growth, and large discrepancies collectively “create doubt about the quality of GDP data".

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