India’s “new and improved” GDP statistics are asking investors to suspend their disbelief. Revised data suggests that growth zoomed in the year to last March, just as the country tightened fiscal and monetary policies to tame inflation, narrow the current account deficit and prevent a currency crisis. Such a thing has not happened in any major economy in at least three decades.
The new calculations, released on Jan. 30, have moved the measurement of national income closer to international norms. But in doing so, India’s official statisticians have produced a puzzling new version of history: the old numbers put the expansion in output in fiscal 2014 at a pedestrian 4.7 percent. Under the new method, growth that year accelerated to 6.9 percent.
The original number was more realistic, and not just because a second year of sub-5 percent growth played a role in helping opposition leader Narendra Modi become prime minister with a landslide election victory.
In the first quarter of that fiscal year the U.S. Federal Reserve hinted at tapering its quantitative easing programme. The rupee collapsed as investors baulked at financing large external deficits in emerging markets. India had to raise interest rates, restrict gold imports and curb budgetary excesses. Though a cheaper currency helped boost exports somewhat, oil prices were still high. The massive fall in imports couldn’t have taken place without domestic demand taking a hit.
By the end of the fiscal year, India’s dependence on foreign capital inflows had dropped by 3 percentage points of GDP. The amended statistics show the same picture. But this lesson in self-reliance now appears to have been puzzlingly painless. The new calculations show growth accelerating by 1.8 percentage points, from a revised 5.1 percent in fiscal 2013.
That conclusion stretches credulity. No large economy has pulled off such a big improvement in its external balance at the same time as such a handsome pickup in output, according to a Breakingviews analysis of 189 nations over 33 years.
Indian officials will most likely have to revise their conclusions. For now, though, investors will miss the old data. For all its faults, it was a more reliable compass. India’s posh new GDP statistics look too good to be true.