The Big Story: Cloudy countdown

The Indian economy is getting back in gear. Data released by the Union government on Wednesday showed that the country’s gross domestic product grew by 7.2% in the third quarter of 2017-’18.

This was the fastest growth in the past five quarters, indicating that the Indian economy might be recovering from the two big hits recently: the demonetisation of high-value banknotes and the chaotic roll-out of the new goods and services tax.

An analysis of this growth also presents a healthy picture. Gross fixed capital formation – a metric that measures investment – saw a rise of 12%. Manufacturing grew at 8.1%, the same as this quarter in the previous year. Agriculture grew at 4.1%, compared to 2.7% in the previous quarter. Construction grew by 6.8%, up from 2.8% in the previous quarter.

Part of these robust numbers can be attributed to the base effect given the slowdown due to demonetisation and GST, as well as high government spending, which will eventually drive up the fiscal deficit of the Union government.

However, some quarters have raised flags on the nature of the sudden turnaround. Japanese brokerage firm Nomura argued in a note that the sharp pickup in agriculture was puzzling, adding: “The accelerated pace of the recovery and the broad-based pick-up across sectors is however a surprise to us.”

Nomura’s comments bring up the constant debate about the quality of India’s GDP data. Questions were also raised when in Q3, 2016-’17, the economy grew at a healthy 7% – surprising given that it was at a time when demonetisation had been announced. At the time, Nomura had asked whether Indian GDP numbers were “fact or fiction”, blaming an excessive reliance on organised sector data for the anomaly.

In 2015, India changed how it measured its GDP using market prices instead of factor costs as inputs. The result was as “bad joke”, according to Ruchir Sharma, chief global strategist at Morgan Stanley Investment Management. The new method had the effect of buoying GDP growth. Moreover, the Union government did not release historical data on how GDP growth would have looked in the past under this new method, leaving economists groping in the dark about what these new numbers meant.

Comparisons with China have surfaced, which had long been accused of massaging its GDP numbers. The new GDP calculation method, argued Sharma in 2015, “makes India look bad even compared to China”.

To add to this, there have also been widespread concerns about the quality of the data presented in the Union budget presented in February. Moreover, even job growth data put out by the prime minister was riddled with procedural flaws.

Economic growth is a crucial measure of a country’s success. In that regard, the data put out by the Indian government needs to be above board, allowing investors and voters to make well-informed choices. Questions about financial data need to be cleared as soon as possible.

The Big Scroll

  • Everyone is sure India’s economy is in recovery – but what is it recovering from, asks Rohan Venkataramakrishnan (Hint: Modi).
  • As analysts take a closer look at the Union budget, some economists fear that the Union government’s fiscal deficit could widen, reports Nitin Sethi.

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  • The Uttar Pradesh government disregards rule of law when it promotes extra-judicial killings by the police, argues Faizan Mustafa in the Hindu.
  • The rise of Hindutva and a stagnating farm sector in Punjab have created fertile ground for Khalistan to rear its head again, writes KC Singh in the Tribune.
  • The Constitution Bench in the land acquisition case must show us that the court still respects rules of precedent, writes Suhrith Parthasarathy in the Hindu.


Don’t Miss

The Punjab National Bank’s audit committee (with a Union government representative) knew the bank’s fraud checks were weak, report Nitin Sethi and Kumar Sambhav Shrivastava.

“Part of the blame may lie with the government itself, particularly the finance ministry. One of its nominees, a senior Indian Administrative Services officer, is a member of the audit committee of the bank’s board of directors. This committee, a subset of the board, is meant to supervise audits and ensure that they are conducted with due diligence and that proper checks are in place to ensure such scams do not go undetected. Documents of the bank show that the audit committee was well aware of how weak its audit and scrutiny system was. As recently as September, another branch of the bank had been found embroiled in a Rs 464-crore scam involving foreign exchange, black money and shell companies.”