GDP growth is a critical variable for decision-making by investors and policymakers. Therefore, the recent debate about accuracy of India’s GDP estimation following the revised estimation methodology in 2011 is extremely significant. As countries differ in several observed and unobserved ways, cross-country comparisons have to be undertaken by separating the effect of other confounding factors and isolating effect of methodology revision alone on GDP growth estimates. Models that incorrectly over-estimate GDP growth by 2.7 % for India post-2011 also misestimate GDP growth over the same period for 51 out of 95 countries in the sample. Several advanced economies such as UK, Germany and Singapore have their GDPs misestimated with incompletely specified econometric model. Correctly specified models that account for all unobserved differences and differential trends in GDP growth across countries fail to find any misestimating of growth in India or other countries. Concerns of a misestimated Indian GDP are unsubstantiated by the data and are thus unfounded.

India’s Economic Performance in 2019-20 confirms the same aspects as highlighted by volume 2 of economic survey:

India’s GDP growth moderated to 4.8 % in H1 of 2019-20, amidst a weak environment for global manufacturing, trade and demand. Real consumption growth has recovered in Q2 of 2019-20, cushioned by a significant growth in government final consumption. Growth for ‘Agriculture and allied activities’ and ‘Public administration, defense, and other services’ in H1 of 2019-20 was higher than in H2 of 2018-19. India’s external sector gained further stability in H1 of 2019-20:

•  Current Account Deficit (CAD) narrowed to 1.5 % of GDP in H1 of 2019-20 from 2.1 % in 2018-19.
•  Impressive Foreign Direct Investment (FDI).
•  Rebounding of portfolio flows.
•  Accretion of foreign exchange reserves.
•  Sharper contraction of imports as compared to that of exports in H1 of 2019-20, with easing of crude prices.

Headline inflation expected to decline by year end:

• Increased from 3.3 % in H1 of 2019-20 to 7.35 % in December 2019-20 due to temporary increase in food inflation.
• Rise in CPI-core and WPI in December 2019-20 suggests building of demand pressure.

Deceleration in GDP growth can be understood within the framework of a slowing cycle of growth:

• Financial sector acted as a drag on the real sector (investment-growth-consumption).

Reforms undertaken during 2019-20 to boost investment, consumption and exports:

• Speeding up the insolvency resolution process under Insolvency and Bankruptcy Code (IBC).
•  Easing of credit, particularly for the stressed real estate and NBFC sectors.
•  Announcing the National Infrastructure Pipeline 2019-2025.

The Economic Survey expects an uptick in the GDP growth in H2 of 2019-20: A 5 % GDP growth for 2019-20 based on CSO’s first Advance Estimates. Expeditious delivery on reforms for enabling the economy to strongly rebound in 2020-21.