New Delhi, September 1, 2023
India’s first-quarter Gross Domestic Product (GDP) figures have left economists scratching their heads, as the government’s official growth numbers for the April-June quarter appeared to diverge significantly from their expectations, particularly when it comes to the manufacturing sector.
According to most estimates, India’s GDP surged to an impressive 7.8 percent in the first quarter of this fiscal year, marking the highest growth rate in four quarters. This exceptional growth in the midst of a global economic slowdown might seem like cause for celebration. However, a closer look at the data reveals a puzzling story, especially in the manufacturing sector.
Economists had anticipated a robust double-digit growth rate for India’s manufacturing sector, but the reality proved different. The official data showed that the manufacturing sector grew at a modest 4.7 percent during this period. This divergence between expectations and reality has raised eyebrows in economic circles.
Key source of this
The key source of this discrepancy lies in the methods used to calculate growth. While economists primarily relied on the earnings before interest, taxes, depreciation, and amortization (EBITDA) numbers of manufacturing companies, the government’s calculations were based on the Index of Industrial Production (IIP) data. This methodological difference has led to contrasting results, as EBITDA figures predominantly reflect the formal sector, while IIP data is more indicative of the informal sector.
Several economists had estimated the manufacturing sector’s growth rate to be in the range of 17-18 percent based on robust earnings reported by manufacturing companies. However, the official numbers showed a tepid 4.7 percent growth, causing perplexity among experts.
The surprising growth figures have fueled speculations about the trajectory of India’s economy in the coming quarters. Many economists are cautiously optimistic but expect growth to slow down, with the possibility of revisions to the current estimates.
For the quarter ending June, India’s overall growth rate of 7.8 percent, while impressive on the surface, raises questions about the underlying dynamics of the economy. The agriculture sector’s growth rate declined from 5.5 percent in January-March to 3.5 percent, albeit still higher than the 2.4 percent recorded in April-June 2022.
As India navigates its economic course through these uncertain times, the disconnect between the calculations made by economists and the government’s official data remains a subject of intrigue and debate. The next few quarters will provide valuable insights into whether the manufacturing sector can rebound as expected or if the economy will follow a different trajectory altogether, keeping economists and policymakers on their toes.