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Should You Take GDP Data at Face Value?
Feb 9, 2016

We are approaching that time of the year when one takes stock of one's performance and sets the targets ahead - the end of financial year 2016, and the beginning of FY17.

The year began with a lot of hopes. However, reality struck, though with a lag. Be it markets, investment data, order books, trade data, different surveys indicating the mood and economic atmosphere, all suggest pessimism, but for one data - the new GDP. One seriously needs to think how the whole can be better when the parts are deteriorating.

As per the revised formula, India is expected to grow by 7.6%. This is better than the initial estimate of 7% to 7.5% growth, and implies that the growth in the quarter ended March 2016 should be 7.8% YoY. One must also note that this is much higher than the growth of 7.3% in the third quarter, which happens to be the festive season. What makes the target significant is that at this rate, India will be the fastest growing economy in the world, surpassing even China.

While we have our reservations about this new GDP, even if we take it at the face value, there are reasons to be concerned.

As an article in Business Standard suggests, in nominal terms, the revised GDP growth is much lower than 11.5% estimated in the Budget. To achieve the Budget target, the Government will need to reduce its expenses. This could be a daunting task, keeping in mind the burden due to implementation of One Rank One Pension for retired Army personnel and the Seventh Pay Commission recommendations. All in all, just looking at the GDP numbers to assess India's economic health and prospects does not seem like a good idea.

Data Source: Central Statistics Office (CSO), Business Standard

This Chart Of The Day was published in The 5 Minute WrapUp - BEWARE: 'The Uber Syndrome'

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