RBI’s dissenting monetary policy committee member questions Q1 GDP data; makes this surprising claim

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Published: September 5, 2018 3:45:32 PM

Finance Minister Arun Jaitley attributed the economy’s performance to the government’s reforms and fiscal prudence amid uncertainty spawned by the trade spat between the U.S. and China.

Statistics ministry data on Friday showed manufacturing sector expanded 13.5% in the three months to June, driving the broader economic growth by 8.2%.

India probably overestimated manufacturing output while calculating economic growth that topped 8 percent in the June quarter, according to a member of the central bank’s rate-setting panel. The new gross domestic product series has mostly replaced the Annual Survey of Industries with corporate financial data for estimating manufacturing value added, according to an article Ravindra Dholakia, a member of the Monetary Policy Committee, co-authored with R. Nagaraj and Manish Pandya in the latest edition of the Economic and Political Weekly. This has resulted in its higher share in GDP and a faster growth rate compared to the older series, they said.

Statistics ministry data on Friday showed manufacturing sector expanded 13.5 percent in the three months to June, driving the broader economic growth by 8.2 percent — the fastest pace for any major economy. Finance Minister Arun Jaitley attributed the economy’s performance to the government’s reforms and fiscal prudence amid uncertainty spawned by the trade spat between the U.S. and China.

“Does the new series represent a fuller description of the manufacturing value added, or is it an overestimation?” the authors wrote. Higher manufacturing growth rate gives “rise to serious doubts about the veracity of new estimates” and is at “variance with other macroeconomic correlates,” wrote Dholakia, an external member on the monetary policy committee and a management professor.

The Reserve Bank of India has maintained its full-year growth forecast at 7.4 percent, while flagging risks from high oil prices and trade tensions turning into a currency war. The central bank increased policy rates twice since June to curb inflationary pressures.

Dholakia has been advocating lower interest rates to support growth and was the only member to oppose a rate increase at the August meeting.

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