Much has been read into the International Monetary Fund (IMF)’s move to cut the projection for India’s economic growth this year, from 6.2 per cent to 4.9 per cent. However, India today played down IMF’s estimate, saying the multi-lateral agency was not aware of the situation on the subsidies front in the country.
On the sidelines of an Organisation for Economic Co-operation and Development event that began here today, Planning Commission Deputy Chairman Montek Singh Ahluwalia said IMF’s projection of 4.9 per cent was a statistical problem. In the first half this year, the economy grew about 5.5 per cent, he said. “I don’t believe 4.9 is reasonable for the year as a whole. That would imply the economy will further decelerate. I don’t think it will,” he said.
IMF calculates gross domestic product (GDP) at market prices (inclusive of indirect taxes), while India calculates GDP at factor cost (exclusive of indirect taxes). If GDP at market prices is taken into account, India’s economy grew just 3.9 per cent in the first quarter of the current financial year, instead of the officially estimated 5.5 per cent.
Ahluwalia attributed the difference between GDP at factor cost and that at market prices to a huge rise in the payment of subsidies. Subsidies are taken as negative taxes and, therefore, would have to be subtracted in the calculation of GDP at market prices. “I don’t think IMF was aware of the fact that there is this little difference. They just took the GDP at market prices,” he said.
Earlier, in an interaction on Facebook, IMF’s Tom Richardson had said if indirect taxes were included and 2012-13 was taken into account, IMF’s estimate of India’s GDP would change to 5.6 per cent.