Arun Kumar
GDP numbers released in the Press Note dated February 28, 2025 (henceforth referred to as ‘the document’) present four sets of data. They pertain to: (a) Quarterly Estimates of GDP for Q3 (October-December) of 2024-25; (b) Advance Estimates of Annual GDP for 2024-25;(c) First Revised Estimates (RE) of GDP and macro aggregates for 2023-24; and (d) Second Revised Estimates or Final Estimates (FE) for 2022-23.
The last three estimates are for annual GDP growth. Each of them is revised upwards compared to their earlier estimates. The upward revision for 2023-24 from 8.2 per cent to 9.2 per cent is indeed big. On this higher figure, growth in 2024-25 is supposed to be 6.5 per cent. Usually, when the previous year figures are revised upward, the next year’s growth rate comes down due to the base effect. This has not happened even for 2023-24, in spite of the revision of growth in 2022-23. Thus, the average post pandemic growth sees an uptick, pointing to a robust recovery.
It is not unusual that data is revised from the provisional to the final but there seems to be a systematic upward revision. This needs further analysis. Earlier too it was pointed out that the head called ‘Discrepancies’ may be playing a significant role in these revisions (The Leaflet, October 6, 2023). These represent measurement errors. They have swung from positive to negative and back. Why is this happening? Very likely, this is due to methodological issues.
Recently, a paper from Pahle Foundation points (Is India missing billions in its GDP, businessline, May 2, 2025) to underestimation of district domestic product (DDP) in the case of four districts of UP. If true for the nation as a whole, then it would point to an underestimation of the national domestic product (GDP) and large discrepancies in GDP data.
Q3 2024-25 data
Figure 5 in the document shows that except for Agriculture and Public Administration, under all other heads, the rate of growth has come down in Q3 2024-25 (current year) compared to the previous year (2023-24). Public Administration also shows a marginal rise.
The biggest drop is in the manufacturing sector from 14 per cent to 3.5 per cent. Figure 3 gives the sectoral breakup of growth rate of Gross Value Added (GVA). It shows the primary sector growth rate rise from 2.7 per cent to 4.4 per cent, the secondary sector rate drops sharply from 11.4 per cent to 5.8 per cent while the rate of growth of the tertiary sector drops from 9 per cent to 7.3 per cent.
Since the share of the primary sector in Q3 is 24 per cent, it adds only 0.4 per cent to growth of the economy. This cannot counter the declining trend in the growth rate of the other sectors. And, the economy displays a decelerating trend.
Upward revision in 2023-24
There is a sharp upward revision of the rate of growth in 2023-24 when the provisional figures released last May are compared with the final figures given in Figure 4.
This revision upwards in GDP is in each of the quarters. Q1 rate goes up from 8.2 to 9.7 per cent, in Q2 it increases from 8.1 to 9.3 per cent and in Q3 it goes up from 8.6 to 9.5 per cent. The Q4 figure is the final figure at 8.4 per cent.
The revision is also in each of the sectors (p. 25) — in primary sector from 2.1 per cent to 2.7 per cent, in secondary sector from 9.7 per cent to 11.4 per cent and in tertiary sector from 7.6 per cent to 9 per cent. So, the rate of growth of GDP for 2023-24 gets revised from 8.2 per cent (provisional estimate) to 9.2 per cent (final figure) — a big jump.
There is revision in the growth rate from provisional to final estimates for other years as well — for 2019-20 from 4.2 per cent to 3.9 per cent, for 2020-21 from -7.3 per cent to -5.8 per cent, for 2021-22 from 8.7 per cent to 9.2 per cent and for 2022-23 from 7.2 per cent to 7.6 per cent. The provisional figure for Q2 of 2024-25 also increases from 5.4 per cent to 5.6 per cent.
Growth in 2023-24 boosted by Discrepancies
The detailed data for 2023-24 given in Statement 1A shows that for 2023-24, imports have surged by 13.8 per cent while exports increased only by 2.2 per cent. This largely neutralised the increase in Private Final Consumption Expenditure (PFCE) which would have boosted growth.
The increase in growth rate in 2023-24 is due to increased contributions by: (a) ‘net taxes on products’ (16.5 per cent), (b) ‘Change in Stocks’ (53.4 per cent), (c) ‘valuables’ (14.4 per cent), and above all (d) ‘Discrepancies’, which have gone from negative to positive and show an increase of ₹6,68,767 crore (4.12 per cent of GDP).
The changes in the share of various expenditures out of GDP compared to the previous year (2022-23) show that share of PFCE fell by 2 per cent, share of net exports fell by 2.5 per cent, and share of Gross Fixed Capital Formation (GFCF) and Government Final Consumption Expenditure remain more or less unchanged. These decline in shares are because of increase in share of Change in Stocks (CIS) by 0.5 per cent and Discrepancies by 4 per cent.
Compared to the previous year’s (2022-23) number, share of Discrepancy in GDP in 2023-24 Q1 turned around by a staggering 6.2 per cent. This points to methodological issues with GDP estimation.
Methodological issue: Changes in data sources
The document also presents the reasons for the changes in estimates compared to provisional estimates given earlier. It says, they were “… compiled using industry-wise/institution-wise detailed information instead of using the benchmark-indicator method …” used earlier. The “… other aggregates for the year 2022-23 have also undergone revisions on account of use of latest available datasets …”.
So, the revision in GDP data is due to the change in sources of data. But most of the sources listed are from the organised sector. So the final figures also reflect growth of the organised sector and not the growth of the unorganised sector. The problem of independently measuring the unorganised sector remains. This is important since alternative data indicates a divergence between the two. So the organised sector cannot be a proxy for the unorganised sector.
Further, as argued elsewhere, the organised sector growth is boosted by the shift in demand towards it from the unorganised sector (the cause of its decline). If this decline is independently captured, the actual growth rate would be far less than the official GDP growth figures. Further, if the revised higher growth in the organised sector is at the expense of the unorganised sector, the revision in GDP data will not mean that the actual GDP growth rate has increased.
Discrepancy deconstructed
Official document defines, ‘Discrepancy’ as the difference in the estimation of GDP by two different methods — production and expenditure approaches. The former is taken as the accurate one, so the discrepancy is the difference in the estimate of the latter compared to the former.
The article referred to earlier points out that this procedure is faulty. The production side measures the output in each sector, including the erroneously estimated unorganised component (as pointed out above). Except for the public sector, there is an unorganised sector in each of the sectors. So, there is an error in the estimation of each of the sectors. In brief, the production side estimate cannot be taken as the correct one.
Data on GDP and discrepancy are given in the Annexure to the document. It shows: (a) the discrepancy is small till before demonetisation in 2016-17; (b) it suddenly jumps up and after that it swings from positive to negative in 2020-21, the pandemic year. This indicates problems in GDP estimation due to the shocks experienced by the economy since demonetisation. As pointed out in the article referred to earlier, each of the four shocks were different so that their impact on the method of measurement would be different. Hence several revisions in method were required.
Impact on macro variables
If the unorganised sector is declining and its contribution to GDP is overestimated, consumption and investment figures would also be in error. It substantially produces consumption goods. So, over-estimation of the unorganised sector would also lead to over-estimating consumption. This would show up as a discrepancy.
Regarding estimation of investment, a higher GDP estimate would lead to a higher estimate of investment also. Decline in the unorganised sector would lead to a lower investment in this sector. But the organised sector being more capital intensive, a shift in the share of GDP towards it would lead to higher investment. This would be captured in the data. So, over-estimation of GDP would also lead to over estimation of Investment.
Conclusion
GDP data needs to be reassessed since the method of its estimation should have been changed due to the shocks to the economy which disproportionately impacted the unorganised sector.
Arun Kumar is Retd. Professor of Economics, JNU.
The article was published in The Hindu Businessline as Questions on GDP estimates on May 6, 2025.
Disclaimer: All views expressed in the article belong to the author and not necessarily to the organisation.
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Acknowledgement: This article was posted by Khushboo Dandona, a research intern at IMPRI.
