Context

• India’s reported 8.2% GDP growth in the second quarter generated widespread optimism and celebratory media coverage.
• However, this enthusiasm coincided with a critical development: the International Monetary Fund (IMF) assigned India’s national accounts statistics a ‘C’ grade, the second lowest possible.
• This assessment raised serious concerns about the credibility and reliability of India’s GDP and Gross Value Added (GVA) estimates.
• The limited media attention given to this issue underscores both statistical weaknesses and failures in economic journalism, warranting closer examination.

IMF’s Assessment of India’s National Accounts

• What the ‘C’ Grade Indicate?
  • The IMF’s grading reflects the quality, consistency, and transparency of national economic data.
  • India’s ‘C’ grade indicates significant deficiencies in data compilation and methodology, casting doubt on headline growth figures.
  • When strong growth numbers coexist with low data credibility, economic performance becomes difficult to interpret accurately.
• Media Response to the IMF Report
  • Despite the seriousness of the IMF’s evaluation, most mainstream and financial newspapers offered minimal coverage.
  • Only limited reporting brought the issue to public attention, while many outlets either ignored it or relegated it to less visible pages.
  • This lack of prominence prevented informed public debate and reinforced a one-sided growth narrative.

Methodological Issues in GDP Estimation

• Reliance on the Organised Sector as a Proxy
  • A central concern lies in India’s method of estimating the unorganised sector.
  • Growth in the informal economy is calculated using organised sector data as a proxy, despite the unorganised sector, excluding agriculture, accounting for around 30% of GDP.
  • Estimating such a large segment indirectly raises serious questions about accuracy and reliability.
• Divergence Between Organised and Unorganised Sectors
  • This proxy-based approach assumes that organised and unorganised sectors move in the same direction.
  • However, this assumption fails during periods of disruption. Events such as demonetisation, the introduction of GST, and the COVID-19 pandemic affected the two sectors very differently.
  • While the organised sector expanded or recovered, the unorganised sector contracted sharply, resulting in systematic overestimation of economic growth.

Challenges in Quarterly GDP Estimates

• Dependence on Assumptions and Historical Trends
  • Quarterly GDP estimates face additional limitations due to the absence of comprehensive high-frequency data.
  • As a result, calculations rely heavily on assumptions, past trends, and historical relationships rather than real-time information.
  • During periods of structural change, these assumptions become increasingly unreliable.
• Implications for Reported Growth Rates
  • The celebrated 8.2% quarterly growth figure must therefore be viewed cautiously.
  • Given the methodological constraints and data gaps, quarterly estimates may reflect statistical modelling rather than actual economic conditions, especially in the informal sector.

Can the IMF’s Concerns Be Resolved?

• Limits of Methodological Revisions
  • Efforts are underway to update the GDP base year and revise estimation methods, but such technical changes alone cannot address deeper structural problems.
  • The lack of direct, reliable data on the unorganised sector remains a fundamental weakness in India’s national accounts system.
• A Pessimistic Expert Assessment
  • Expert assessments suggest that fully resolving the IMF’s concerns is unlikely in the near future.
  • The challenges are systemic, rooted in data collection capacity rather than merely calculation techniques.

The Role of the Media in Economic Understanding

• Media as an Informational Gatekeeper
  • The media plays a crucial role in shaping public understanding of economic performance.
  • By downplaying or ignoring critical evaluations, it limits the public’s ability to interpret growth figures critically and independently.
• Consequences of Media Silence
  • This selective reporting results in an uninformed public and weakened accountability.
  • When methodological flaws are sidelined, policymakers face less scrutiny, and economic narratives remain incomplete.

Conclusion

• The IMF’s low grading of India’s national accounts highlights serious weaknesses in GDP estimation, particularly concerning the unorganised sector and quarterly data compilation.
• While headline growth figures may appear strong, their credibility is undermined by methodological limitations and inadequate data.
• The media’s failure to engage meaningfully with these issues further compounds the problem.
• Sustainable and credible economic assessment requires transparent statistical practices and responsible journalism, without which growth narratives risk becoming misleading rather than informative.