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10 Feb, 2015 11:03

​New GDP calculation puts India growing faster than China

​New GDP calculation puts India growing faster than China

A change in the way gross domestic product is calculated puts Indian growth ahead of the traditional Asian powerhouse of China. However, the revision has been greeted with skepticism from some economists.

Twelve days ago, the Indian government revised its method of measuring GDP, replacing factor costs with internationally recognized market prices. On Monday, the Statistics Ministry in New Delhi said the country’s economic output is expected to grow 7.4 percent in this fiscal year compared to 6.9 percent in the previous year.

Growth for the previous three months has been revised up sharply to 8.2 percent from an earlier figure of 5.3 percent. As a result, India has officially overtaken China as the world's fastest-growing economy with its 7.5 percent growth in the December quarter. China grew by 7.3 percent in the most recent quarter.

The new method of calculating is a so-called rebasing under which the real GDP is measured in accordance with the prices and structure of the economy in a base year. The GDP figures for a one-year period become less relevant over time, that’s why the base year is changed periodically. For India the base year changed on January 20 from 2004-2005 to 2011-2012. Partly as a result of this, the country’s GDP growth for 2013-2014 was revised up from 5.1 percent to 6.9 percent.

The country’s new way of calculating GDP was met with criticism as the new estimate is sharply higher than the Reserve Bank of India's growth prediction of around 5.5 percent for the year under the old method. Some economists point to other indicators such as industrial production, trade and tax collection figures, which suggest the economy, is still suffering.

"My view is that the economy is certainly making its way up, but none of the other indicators suggest that we have completely made our way out of the ditches,” Jyotinder Kaul, principal economist at HDFC Bank, told BBC.

The International Monetary Fund last month predicted India would overtake China next year as the fastest-growing major economy with 6.5 percent annual growth compared with 6.3 percent for China.

Falling oil prices helped to cool inflation in the country and made it easier for new Prime Minister Narendra Modi's reform-minded government to do business. Prior to Modi's election last May, the India’s economy had been struggling through its worst slowdown since the 1980s.