HomeNewsBusinessEconomyExplained: 'Discrepancies' in GDP data and how they affect headline growth rate
The statistics ministry measures the country's GDP via two methods â income and expenditure. Any difference in the numbers arrived at through the two approaches is filed under the sub-head 'discrepancies'. And this is often a very volatile number and creates uncertainty when it comes to the headline GDP growth number.
March 04, 2024 / 14:38 IST
As per data released on February 29, Indiaâs GDP growth rate surged to a six-quarter high of 8.4 percent in October-December 2023.
For the second consecutive quarter, India's GDP growth rate handsomely beat all expectations, coming in at 8.4 percent in October-December 2023. This followed 7.6 percent print for July-September, which has now been revised up to 8.1 percent. Sandwiched between these two data points was the first advance estimate of growth for 2023-24 as whole, which was pegged at a higher-than-expected 7.3 percent and has now been raised to an even higher 7.6 percent.
However, even as GDP growth has surged â and the reasons for it range from a favourable base to reduced subsidies â there is one component that deserves some special attention: 'discrepancies'.
Also Read: Economists focus on Q3 GVA growth to keep out noise in GDP from volatile taxes, subsidies
What is a discrepancy in GDP data?
The GDP is calculated using two methods â income and expenditure. Any difference in the numbers arrived through the two approaches is filed under the sub-head 'discrepancies'. And this can be a rather volatile number.
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In October-December 2023, for instance, the discrepancy stood at Rs 6,935 crore, down from Rs 23,853 crore in July-September. However, in October-December 2022, it was at a negative Rs 1.34 lakh crore.
A positive discrepancy number means the GDP arrived at from the income approach â which involves adding up the value added by the various sectors of the economy, such as agriculture and manufacturing â is more than the GDP when it is calculated by adding up all the various types of expenditure categories: private expenditure, government expenditure, and capital formation, to name three. When the discrepancy is negative, it means the GDP arrived at from the expenditure side is greater than that from the income side.
Is a discrepancy good or bad?
To be sure, the presence of a discrepancy does not discredit the GDP number or the growth rate. According to economists Nikhil Gupta and Tanisha Ladha of Motilal Oswal Financial Services, it instead "reflects the limitation of authorities to distribute GDP into consumption and investments properly".
As shown in the chart above, discrepancies can also move wildly. The "large swings" in this number in 2022-23 and 2023-24, according to economists Sunil Kumar Sinha and Paras Jasrai of India Ratings and Research, means India's GDP "data still has a lot of noise in it".
Why do discrepancies matter?
By definition, a discrepancy is a portion of the GDP that is not explained by one of the two approaches of calculating it. As such, it is noteworthy when a significant part of GDP growth is not accounted for. And in recent quarters, the unexplained has been rather large.
"In Q3 2023-24, around 42 percent of the GDP growth, 41 percent in Q2 and 96 percent in Q1 was explained by discrepancies (in contribution terms). This highlights data quality issues on the expenditure side," said Gaura Sen Gupta, India economist at IDFC First Bank.
According to economists' estimates, discrepancies added as much as 350 basis points to the GDP growth rate in October-December.
Siddharth Upasani is a Special Correspondent at Moneycontrol. He has been covering the Indian economy, economic data, and monetary and fiscal policies for nine years. He tweets at @SiddharthUbiWan.Contact: [email protected]
Tags: #Economy #Explained #GDP #GDP growth
first published: Mar 4, 2024 01:59 pm
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