CutTheClutter: Fight over India’s growth numbers, data & new methodology, CEA V. Anantha Nageswaran joins in

0:00A big fight has broken out a Shelby quality care foeful, our favorite word from the past. And this time it is over the quarterly growth figures. More the government has reported that the growth figure for the first quarter, growth figure for each quarter comes with a two month lag. So this is the quarter of April, May, June. That's why at the end of August the growth figure has come. That is at 7.8%. That is led to opposition questioning it. They are calling it statistical gymnastics. Also a former finance secretary, Subash Anagar, he is a paid-on-TV channel saying that this is wrong and he has put some figures on the table. And with this figure, he said this growth, if at all, is just 2.6%. It is not 7.8%. That 7.8% number is a fix. That is something that the critics and opponents of the Modi government have bought into because

1:00after all, who can fight with figures, who can fight with basic data and basic arithmetic. And what is this arithmetic? This arithmetic is that last year, that is for financial year 2025, 26, for the first quarter, Modi government reported that the total economic activity in India or the total GDP output in that quarter, one quarter was 86 trillion rupees. 86.86.05 trillion rupees, one trillion as we know is one like crores for simplicity. Now we are starting to use trillion. So 86.05 trillion rupees. Now because they came out with a new base, new base share for GDP calculation, earlier base share was 2011-12. Now it has been shifted to 2022-23. With that, that quarter one 2025-26 figure of 86.05 trillion has been downrated or has been reduced to 80 trillion rupees.

2:07In fact, exactly 80.44 trillion as we stand now because this keeps getting revised. Every time it gets revised by a few billion, what is a few billion between friends, then we are talking of billions. So at this point, the Q1 quarter one, the corresponding quarter to what is in dispute right now, the corresponding quarter last year, the GDP is at 80.44 trillion rupees. Now the argument is that Modi government reduced last year's GDP from 86.05 trillion to 80.44 trillion so that this year's the same quarter, corresponding quarter's GDP, in comparison would look better. It's a bit like the old belief that before marriage, you know, it's isn't that what's believed in conventional families, that before marriage, let the bride and the groom may not groom themselves so much, etc, etc. So that on the day of the wedding, they really shine.

3:10They've made one set of data look really bad for themselves so that the other set of data, which is current here and now and which plays into headlines now, that looks better. Arethmetically, this is very simple. If you compare this quarter's GDP, which is 88.27 trillion dollars with 80.440 of last year, corresponding quarter, you get the growth of nearly 7.8 percent, correct calculation. But if last year's corresponding quarter had stayed at 86.05 trillion, which was the original, then 88.27 over 86.05 will only yield you 2.8 percent growth, that is the argument, there is a fix. On the face of it, the arithmetic looks simple, but nothing in life is as simple as arithmetic. There are complexities. Also, it looks like a really sound conspiracy theories.

4:11And as a journalist, I am suspicious of conspiracy theories. I want them checked out at the same time, I would never dismiss them out of fan. I will give them a fact check. In this case, it test me particularly because economics is not necessarily my domain and definitely not my strong suit. So, I have had to lean back and look at some experts and look at some writings. And the good thing is that I was able to reach Vianathan Ageshwaran, who is Archive Economic Advisor. He agreed to join us from New York. So, in just a few minutes, he will be online from New York answering the same questions line. I am only setting up the questions for you right now. So, once again, the argument is that 86 trillion of last year was deliberately reduced to 80. To make this year's 88 look that much better. So, Modi government was quite happy to shoot itself in the foot in terms of making the last year look bad. The fact is that last year's revision was carried out not on the eve of this quarterly figure.

5:17The last year's revision of the first quarter was announced mid February this year by which time nobody had any anticipation of what happened this quarter. Definitely, the foreign Iran had not started this yet. That this base year will be revised had been said earlier, had been said earlier, had been formerly announced. So, this did not come as a surprise. The earlier base year that we were continuing on was 2011-12. Then also a revision of base year was carried out under the UPA. It's a routine thing for good governments to carry out base year revisions periodically. The fact we also need to notice that this base year revision actually did not dress up the figures for Modi government. It actually dressed them down. What does it mean? What it means is that the size of India's GDP overall went down for financial year 2025-26,

6:18went considerably lower than it would have been under the old base year formula. Combined with the depreciation of the rupee, this row, this push India's GDP downwards below the 4 trillion dollar mark, you might have noticed that for a long time nobody from this government has been talking of this being a 4 trillion dollar economy, moving towards a 5 trillion dollar economy, etc. Also in the process from the verge of being the third largest economy in the world, India is now back to being the sixth. The rupee has depreciated, that has contributed to this, other currencies have done better, but more importantly, more importantly, this downward revision reduced the size of India's GDP for last year. If at all you will then blame the Modi government for being so silly that they downgraded themselves and since then they have not been talking about becoming the third largest, large as to assume to be the third largest, fourth largest economy,

7:18etc. Because the current rankings are US, China, Germany, Japan, UK and India. So Japan and UK have both left India behind again and Germany is in no danger of being overtaken by bias. That is the impact of last year's revision. There are also new methodologies in the new base year calculations. That is not something that I can talk about with in any detail, at least not with any authority. I will be ratifying something, cramming up something and repeating that to you will not make any sense to me or to you. For that we will have VNNth and Argeeshwar and talking in just a little while. I will also share some readings with you, which I will list as we go along. However, these new methodologies include things like double deflation and producer price index. These are to conform with the United Nations National Accounting norms. Last year in 2025, when IMF carried out in a preserve of India's national accounts and India's economic

8:21management, etc. They had raised questions about the quality of India's national accounting. This is a response to that. So the introduction of PPI that is producer price index, it will be explained to you what this means and double deflation that Anath Nageshwaran will explain to you. These have come in as part of the new way of calculations and here when it comes to the larger economic activity, more than a hundred high frequency indicators are now taken into account. So one question that's been coming up, that at least I can answer, that question is that you are using a GDP deflator of 2.5%. That means you are saying the GDP grew by 10.3%, take out 2.5% for inflation. So that is deflation from the nominal GDP, nominal GDP includes inflation, etc. You take out 2.5%, that is a deflator. So you are left with 7.8%. So criticism is, how can a deflator be only 2.5%, then your consumer price inflation

9:25is 3.9% and wholesale price inflation is 9%. So 3.9% and 9% and your deflator for adjusting your nominal GDP to real is only 2.5%. The answer to that is that this deflator is not just your consumer price index and wholesale price index. They play a role but there are lots of other factors, lots of other factors include government spending, banking, insurance, markets, services and the services area overall has had very, very low inflation. When you combine all of that, that adds up to a dead figure of 2.5%. That then becomes the deflator. It is not just a straight forward deduction of consumer price index or wholesale price index. Those are elements that go into the calculation of this deflator. Then even if you accept the 7.8% growth figure, there are problems and for that I will comment to you with Isha Bhattacharya's column for us.

10:29Please check it out. It's on your screen. I will also share a link with you where she also tells us that the economy is growing faster than people are spending. So people's household spending is not growing. Gold buying is also also coming down. Although the Prime Minister is telling households to buy even less gold. In three out of four quarters, economic growth has been 7.8% or above preceding quarters. It peaked at 8.6 that is the fourth quarter of last year. But consumer is not spending. Consumer spending is not going up. In fact, buying a spike after September 22 last year. By September 22, that's the day when the new GST cuts came into place. After that, India saw some kind of a boom. But it was temporary. Boom in automobile buying and some other consumer purchases because people took advantage of the lower GST. However, this is now leveling out. And again from Bidisha's column, I will share this graphic with you that tells you how the 7.8%

11:30growth breaks up. Out of this 4.92 out of the 7.8, 4.92 or 63% comes from the tertiary sector. Tertiary sector is financial services, IT, real estate, professional services. That is 63% or 4.92 points out of the 7.8. The second is the secondary sector. Secondary sector is 1.99 points. And the primary sector is just 0.53%, which is where the problem lies. Primary sector is 0.53. Secondary sector 1.99. This leads to the conclusion that the consumer is not keeping pace with this economic growth. So the basic takeaway is that the consumer spending, household spending is not keeping up with this economic growth. Is this then sustainable? Those questions arise. Some of those questions, including the basic questioning and debate on how the 7.8% growth figure can be

12:33justified and also some of the new technicalities that have come in. We will go to Vianathan Ageshwaran before that I will list for you three readings. One is a paper in the fourth coming edition of the IMF quarterly FNT that is finance and development. And this is a paper by former highly respected RBI governor Doveri Sobarav, who is asking if India's growth is sustainable, can they maintain this? Second is column by Bidesha Bhattacharya on the print and the third is an editorial from business standard which tells you about the growth but also underlines some of these problems. At which point I shall turn to Dr. Anandthana Nageshwaran in New York. Since you've all seen me struggle with explaining these complicated terms, these arguments and controversy, GVA, PFC, etc etc, things that I don't know very much about. I've tried Gimli but you know what I now have help and help comes in the form of Vianathan Ageshwaran, Chief Economic Advisor,

13:35who who has agreed to join us from New York. He's in the US for the G20 Finance Minister and Central Bankers meeting. The Finance Minister has also been there. He's found time to join us. Thank you very much Anandthana if I may address you as that. I can use my sizable age advantage over you. Thank you. Thank you for having me, Shaker. Please. No problem. Anandthana Nageshwaran, there are some things that this is now lost in TV arguments. TV arguments and what Sergio got just described as usually 12 heads talking over each other all at the same time and nobody figuring out what's happening. My challenge is since I am economics illiterate, I have to figure out what does what do these figures and data mean. So I will ask you some questions. You have limited time. I will ask you some questions which are maybe an idiot's questions but when I say an idiot, I don't want to insult all the other Sumi not know economics. I only refer to myself and thereby the first question I ask you is that basic question that's now being raised

14:41is that the government reduced last year's quarter one overall GDP output to 80 trillion dollars from 86 trillion dollars. That's a reduction of 6 trillion dollars. This year's quarter one compares not with the 86 trillion dollar that was the original projection for last financial year but against 80. If you take it against the original of 86 then the growth is just about 2.8%. That's what also the former finance secretary Shubash Gurg has been saying on TV channels. Now mathematically that makes sense but we also know that this reduction has been made as part of the process of rebasing, finding a new base for GDP calculations. The new base now is 22 to 2022 Please help help make sense of this reduction in quarter one GDP output for last year 2526.

15:46Thank you Shaker. First of all these are all not so called you know idiot questions. These are actually non-economist questions and for a non-economist you actually have probably partially answered the question yourself. So you don't have to feel apologetic about being a non-economist at all. So anyway that apart you are right that 86 lac grows the GDP estimate in nominal terms or current prices as they call it for 2526 first quarter April June is now lower at 80 and this year first quarter number is 88 so that gives you something like a 10% growth. If it was 86 it would be 2.0 something percent growth is the argument. Now that is to 86 lac grows was an estimate given under the old GDP base year under the old series. Now if you really want to compare 86 with something that you don't cherry pick. If you want to compare 86 that belongs to the base year 2011 12 series

16:48then please estimate the same metric for 2627 first quarter under the same base year and then you compare that number and say what the growth rate is that would be at least somewhat defensible but now what they are doing is they are taking the 2011 12 number of 86 and comparing the 88 lac grows which is now devised which is now compiled under the 2223 base year and saying that the true GDP growth rate in nominal terms is 2.7%. That's not correct you are cherry picking the number that you want either you stay consistent with the 2011 12 base year for both the 2526 first quarter and 2627 first quarter or we go by what the government what the Ministry of Statistics has given which is to basically show the numbers for last year and this year first quarter on the same basis same platform on the 2223 base year. Now these remissions happen in fact India is

17:48one of the few countries that have actually when they shifted from 1112 to 2223 has actually brought down the size of the economy from 357 lac grows under the old estimate to 346 lac grows. So we are not trying to use the numbers to bump up estimates one way or the other this is what we get when we improve our data collection introduce a producer price index instead of just using wholesale price index instead of using one price index to adjust every current price quantity into into constant price quantity across output across input. So we make all these methodological improvements as a process sometimes numbers some quarter numbers will get bumped up some quarter numbers will make it bump down this is part of the statistical revision all that people should do be consistent choose one base year and have numbers of all the way and compare or do not cherry

18:50pick your numbers to suit the contortion that you already have in your head. Yeah I was just to clarify rather than be a project I'm allowed to laugh at myself once in a while just just to be little self-debrickatory that's also indifference to people people who have really intellect in their domains like you and many others in other domains. You are you are you are perfectly fine to make that joke on you. So in fact all of us have to do that from time. Yes it's important it's important to laugh at yourself otherwise life life life is much too serious now let me ask you a follow you are saying apples with apples oranges with oranges so if you are taking the 86 lac road figure for Q1 last year then if you followed the same base then are you suggesting this 88 lac road figure for this year might have been much higher undoubtedly but unfortunately I can't give you the number because I don't have moscow is not putting up that number because now we have

19:50shifted to a new base year if you had stuck to 2011 12 base year then that number would be somewhere closer to 93 94 or 95 I don't I don't have in fact if anything it would be even higher because the in the whole series we were using only one price index to deflate and the wholesale price index had gone up so much because of input prices like crude oil fertilizers etc prices went up in the April to June quarter because of the West Asia conflict the nominal GDP number might have been much higher in fact instead of 88 you may be looking at a number that is closer to 96 or whatever so that number we don't have so if at all you want to make an argument I'm not saying you as in Shaker I mean as the the outside world those who want to criticize I think that they need to have the same basis same reference methodology reference period to be able to make those kinds of statements so last year's revision in fact or change change in base year has reduced the size of India's GDP

20:57and that was under the India government so it's not as if India government is trying to dress up its figures for now or dress down the previous government's figures this is for their own year absolutely absolutely in fact the GDP as I told you our GDP value nominal GDP was 357 lakh crores as of March 2026 under the old series in the new series it is now 346 I can be very precise based on what must be has given us now it in fact 345.37 lakh crores and what that means is that also also given the depreciation of the rupee Indian GDP fell below the four trillion dollar mark that's as you are right as of March 2026 the nominal GDP in dollar terms was three point nine one trillion dollars in March 2026 yeah I would say in this case in this case if the government was trying to dress up the data and if it any government had the power to do

22:02it without raising eyebrows with I am F and elsewhere because you are under watch all over the world you could have taken it kept it above four trillion dollars that would have looked much better than three point nine one I understand this now does this also mean that all the following quarters would be reduced accordingly as Q1 was reduced last year no that will be very difficult thing to say shaker because it depends on the kind of price movements that happened in the particular quarter so whether the numbers for second third fourth quarters of 2526 will get revised up or down is something that I cannot say it depends on how the methodology and the new price indices because Mossby has been revising many of its input data series that go into GDP calculation we now have a producer price index which is one of the reasons why some numbers were slightly tweaked in this August edition we have a new index of industrial production we do now regular household consumption

23:04surveys so given all these things that are going on all these changes it is very difficult for me to tell you that the numbers for 2526 quarters two three and four will get revised in a particular direction that I can't say this producer price index system as I understand is is now to conform to human system of national accounts is that so you're right that's and that would you call that a positive change a reform or would you would you say that this is done under some kind of a global norms which might be owners for India no no it's not owners in fact wholesale price index is you know at the at the at the at the at the level of distribution channel before it reaches the end consumer producer prices or what is necessary to understand what is the price at the factory gate and and for some commodities you need to have that and for others you need to have what consumers pay which is a consumer price index and then you so I think these improvements are

24:06necessary to have a basis wherein cross country comparisons can be made if all of us do it on the same methodology and same principles and countries do have different price indices to deflate numbers from nominal to real which is basically from current to constant and we were using one price index to do all of that now we have multiple price indices to be able to apply as per the series as per the sector we are looking at so it is an improvement and this was one of the reasons that you know the the last year the IMF assessment overall they overall they gave India statistical system of be rating but for national income accounts they gave a lower rating because of this absence of double deflation methods and lack of updating of industrial production series etc all of them have been fixed in the last 8 to 10 months okay Prof now be a Prof and explain to us the double deflation

25:10system okay look I'll say in general when we want to understand what is the real growth in an economy as opposed to simply prices going up we want to compare quantity produced in a base here and quantity produced in the current year by excluding the price effect so you have to isolate the price effect to isolate the price effect you have to use the price index and say okay now if I keep that constant what really happened to the actual production in the economy did it go up or not so for example just to digress a very little in in in in Japan because in the last 25 30 years since 1990 when the economy was going through deflation which means prices were coming down year after year paradoxically in constant price terms the GDP growth rate looked healthier now if you remove the price effect in current prices Japanese economic activity was was weaker so whether it is deflation

26:14or in the period of inflation you want to isolate the price effect and just concentrate on actual production in the economy and for that we need to deflate the nominal series by using some price index instead of using only one price index especially for manufacturing now what we have which is one of the important requirements of international agencies is to have one separately for inputs one separately for output and that is what we have now and also for the input series we have now different sectoral price indices so we are not applying like one tool to to deflate current prices into constant across the entire national income accounting series particularly with respect to manufacturing we are now using one separately for input one separately for output which is what many mature statistical systems do and we are now part of that so can you give me an example an example for the double deflation system I understand that that if somebody is producing any any goods iron ore is

27:18going in or steel is going in or energy is going in so the prices of energy are going up petroleum are going up so that is one inflation then what the company or the person produces the price of that product goes up that is the other inflation so you are saying that you are now knocking both off from the overall value of the product and that is double deflation cut from this cut from this yeah you know you're right so for example take manufacturing this year in the first quarter April to June when we had the Persian Gulf Conflict so what is manufacturing value added value is basically total value of the output what we produce minus the value of the inputs that go into it so that is value addition and in terms of inputs you have crude oil electricity metal prices base metals like copper steel aluminum and etc so now obviously in the first quarter

28:20those were going up very sharply and therefore the input prices were going higher and therefore in nominal terms the input value would have been much higher but in real terms after excluding the price effect it becomes quite low and and must be in its you know in its FAQ release has clearly shown that number it was 22% in fact the input cost inflation but let's say on the other hand on the output side what people companies which use these inputs and produce if they're unable to increase their prices because of competition because of market demand condition so whatever may be the reason they choose not to then what happens is the nominal output when it is deflated using output price index it doesn't come down that much because output prices have not gone up so net result what you have is the real value of the output is in that much lower whereas the real value of the input is much lower because input prices had

29:25gone up and therefore the manufacturing GBA in real terms is higher now these kinds of things over a long period will wash out you cannot just pick out one number and say oh you basically in a quarter when crude oil prices went up you are showing manufacturing GBA in real terms having grown faster at 9.3% compared to nominal terms 7.7% that is not to this is how exactly the methodology works and in some other quarter it will it will have a different dynamic so that is how it is so this is a classic demonstration of how the double inflation double deflation method worked yeah yeah I'm looking at mining for example and I have seen the mosby statement also that's come out mining the question is that you know how does minus 2.4 real GBA that is cross value added that work with inflation in mineral goods etc and I see the two data points there one says real GBA is minus

30:332.4 I'll follow it follow up with a question on the state of our mining but nominal GBA grows value added is 22.3% so mining is the starkest difference if you would explain that so exactly in the case of mining it is not a double deflation method that is at work here what they are very clearly that's why I said manufacturing they apply the double deflation method here what they do is when they compile GDP per quarterly in the annual series they have more data and they will calculate current prices quantities first apply the deflater and get the current and the constant price values but when you do quarterly series because not all data are available at this time what they do is when they compile the constant price value or the real value of mining output they are taking the volume indicators available from the index of industrial production so it is not as if you start with the current price quantity deflate it and get the

31:36real quantity of mining output what they are doing is they are taking the index of industrial production volume indicator and that in the quarter April to June you had a negative growth in April a negative growth in May and a slightly positive growth in June so as a result in real terms you had basically a minus 2.4% in real-glass value added in the mining and quarrying sector but obviously when you look at the nominal values because of crude oil prices that went up and which is 33% according to them other mining and quarrying went up by 8.7% metal over 23.5% so you can clearly see in some sense this is the kind of inflation in the input that went up quite a bit which is why nominal value nominal GVA growth in mining and quarrying was up 22.3% whereas in real terms because of the extremely high prices the real growth was minus

32:412.4% but in any case please remember in mining and quarrying the real GVA for a quarterly numbers is calculated using the index of industrial production when the annual series is released it will all come nominal will be calculated first and real will be calculated by using deflate us for the annual series following up on this do you have do you have concerns on mining because from what I see of data quarter after quarter looks like one sector which seems to be weighing on our growth rates weighing down our growth rates is mining mining is not picking up as much as we might have expected because a lot of reform has taken place in that area there is a new law private sector has come in and yet mining output is not going up yeah you could say that I think in April and may you had a lot of uncertainties but you know if you look at the index of core industries production which is also from an output side it has not been so badly affected in fact if anything index of

33:42core industries is growing if I'm not mistaken I'm quoting from memory here is growing at an annual rate of more than 5% so it is not hampering industrial production activity so to that extent that's a consolation but yes you're right at some at some level obviously the in the raw materials have to be mined and generated to be able to feed into the industrial production otherwise they have to be quoted exactly exactly so but the good news is that industrial production the index of core industries production is showing a very healthy trend so before I let you go I know that this is going to debate and at least this I've been able to understand a little bit by now this why is your GDP deflator only 2.8% or something whereas your consumer price index is much higher and wholesale price index is even higher so your GDP deflator is 2.5% actually that is the percentage by which you adjust nominal GDP arrive at real GDP whereas consumer

34:47price index is 3.9% and wholesale price index is 9% and so we are not going to run doctor we are not going to run what I fix isn't doesn't it sound convincing first look no no GDP is the sum total of all economic activity in the country when you look at CPI it's only a very narrow household consumption basket and if you look at the wholesale price index it is just basically price index of goods at the level before they reach the end consumer so both of them are narrow a GDP deflator is an absolute comprehensive price index of the entire economy which includes a lot of things crude oil renewable energy aluminum copper steel export, corporate investments services sector and I believe services sector is very low inflation exactly and also industrial goods also are part of it capital goods are part of it so it is a comprehensive index

35:52and you just simply need to look at not only now but anytime in the past for India or for any other country try to put a simple you don't have to be an asset you know in non-economist you simply have to plot the GDP deflator inflation rate and consumer price index inflation rate for any country including India or any other country you him barring some occasional correlation or co-movement moving together they are not necessarily correlated because what they are very small strata they cover the very very small portion of the economy a GDP deflator is much bigger so it can be higher or lower than these series if there is a persistent trend of a very high inflation in CPI and WPI and the GDP deflator doesn't show that then of course you may want to take a look at it and see what is missing here but for a given quarter or here and there this kind of deviation is par for the course so I have to let you go you have more important things to do before that

36:53will you will you say hand on your heart that as they say it codes to your best best information and knowledge and beliefs this is the true GDP growth number for this quarter of course everything is up for revision as we go ahead but those revisions tend to be minor okay shaker you told me to say with hand on my heart I'll start by doing that hand on my heart I can tell you in the economic survey in January 2026 I actually wrote that we are revising higher the potential growth rate of the economy to 7% and it could even go higher if we do deregulation if private sector capital investment picks up etc etc so we wrote that we we wrote it well before these GDP data came out that we are revising the ability of the economy to grow to a level of 7% not withstanding the global uncertainty is number one the second reason why I with hand on my heart I can say these numbers represent true underlying economic activity in the country is you look at the

37:58high frequency indicators which nobody is fudging because there's actual cash involved people paying GST banks extending credit export growth in dollar terms and then the index of core industries production so you look at bank credit growth to industry to consumers GST paid export growth rate you look at and the ebay bill raised all of them are signaling that there is economic activity so it is not as if the GDP data came out with you know in a disjoint that manner from these high frequency indicators that is why I can tell I can tell you with hand on my heart that we are missing the fact that the lagged effect of the structural reforms including public investments made since 2014 are beginning to show through the banking system isn't very good health it is lending and private sector you have seen newspaper reports private sector is beginning to do its care picks in India and every and you are you are very active on X you are seeing how many young startups are saying we have discovered this we are coming out with this new product etc so in fact sometimes I feel

39:03that the statistics cannot capture this dynamism so with with complete clear conscience and hand on my heart I can say that these numbers represent the true underlying vigor of the Indian economic activity thank you back to you thank you Dr. Vianan Nageshwaran thank you most of all for finding the time in the middle of so many things on in New York morning my pleasure thank you good talking to you