ECONOMIC NOTES

EPW Research Foundation

Some Puzzling Features

of Indias Recent GDP Numbers
J Dennis Rajakumar, S L Shetty

An analysis of the end-November

2015 data release of the Central
Statistics Office raises some
issues that must be kept in mind
while discussing the state of
Indias economy. If past trends
are anything to go by, economic
growth in 201516 will not
improve in the last quarter
as some seem to hope. The
movements in the GDP deflators
and the very odd behaviour of a
gradual decline in the investment
rate together indicate that
growth in 201516 will not end
as earlier forecast.

he Central Statistics Office (CSO)

released the second quarter estimates of 201516 on 30 November
2015 (CSO 2015b), which has certain interesting and even intriguing features. The
object of this note is to decipher the various
dimensions of quarterly, half-yearly and
annual growth rates of gross value added
(GVA) at basic prices, gross domestic
product (GDP) at market prices, and in
their respective implied deflators. Using
these estimates for GVA at basic prices and
GDP at market prices, we provide an assessment of the likely influence of indirect
taxes on the growth rate, even if negligible.
Our review of these numbers also extends
to a few more areas: (i) a comparison of
the behaviour of GDP deflators with the
behaviour of wholesale and consumer
prices; (ii) a closer look at the deflators
employed to estimate private final consumption expenditures (PFCE) in real
terms, a key component of GDP at market
prices; and, finally, (iii) the dichotomous
nature of trends of the investment rate
and GDP growth rate.
Odd Seasonal Growth Trends

J Dennis Rajakumar (dennisraja@epwrf.in) is

Director and S L Shetty (slshetty@epwrf.in) is
Advisor, EPW Research Foundation, Mumbai.
Economic & Political Weekly

EPW

january 9, 2016

Second, while the sharp increases in

growth rates are observed in quarterly
and half-yearly periods as well, certain
distinct seasonal patterns are observed,
especially in quarterly growth rates at
current prices (Figure 1, p 80). The quarterly data follow a zigzag pattern in practically every year with the second quarter
growth, in general, being the peak and
the fourth quarter growth, the trough.
There is thus a jump in the growth rate
from the first quarter to the second or at
times from the second to the third, and
then it declines in the next quarter. Following these quarterly trends, the halfyearly growth rates on a year-on-year
(y-o-y) basis, whether at constant or current prices, show that the first half
(AprilSeptember) of all years experiences higher growth compared to the
second half (OctoberMarch). These
seasonal trends are partly reflective of
the flows of agricultural output, though
the difference between kharif and rabi
output has narrowed over the years, the
second quarter is when GDP growth
peaks, and not the third quarter.
Indirect Tax Collection Effect
The third set of revelations in these data
concerns the distinction between GVA at
basic prices and GDP at market prices.
Until the NAS New Series, the CSO used
to measure the economys growth in terms
of the changes in real GDP at factor cost.
The sum of GVA originating from various
economic activities such as agriculture,
mining, quarrying, manufacturing and so

In Table 1 and Table 2 (p 80), we have

mapped growth rates in GVA at basic prices
and GDP at market prices, Table 1: Growth Rate of GVA at Basic Prices
(y-o-y Basis, in %)
Year
Quarter-wise
Half-yearly Full Year
respectively, in quarterly, Variable
Q1
Q2
Q3
Q4
H1
H2
half-yearly and annual peri- At constant price 201213 5.0 6.2 4.4 4.1 5.6 4.3 4.9
ods for all the years from
201314
7.2 7.5 6.6 5.3
7.4 6.0 6.6
201213 onwards as availa201415
7.4 8.4 6.8 6.1
7.9 6.5 7.2
201516
7.1 7.4
7.2
ble in the National Accounts
Statistics (NAS) New Series. At current price 201213 13.0 14.7 12.3 11.7 13.9 12.0 12.9
201314 12.8 14.7 15.0 10.6 13.8 12.8 13.2
A few features stand out.
201415 14.0 13.4 8.2 6.0 13.7
7.1 10.2
First, the annual growth
201516
7.1 5.2
6.2
rates of both GVA at basic
Deflator
201213
7.6 8.0 7.6 7.2
7.8
7.4 7.6
prices and GDP at market
201314
5.3 6.7 7.9 5.0
6.0
6.4 6.2
prices show sharp increases,
201415
6.1 4.5 1.3 -0.1
5.3 0.6 2.9
the former from 4.9% in
201516
0.1 -2.0
-1.0
201213 to 7.2% in 201415 Q1 relates to AprilJune; Q2 to JulySeptember, Q3 to OctoberDecember and
to January and March.
and the latter from 5.1% to Q4
H1 relates to AprilSeptember and H2 to October to March.
Source: Based on data extracted from EPWRF India Time Series.
7.3% over the same years.
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ECONOMIC NOTES

EPW Research Foundation

Figure1: Quarterly Growth Rate of GDP at Market Price

(at Current Prices, in %)

Figure 2: Movement in Price Indices

(Index value)

140

16
201314
14

130

GDP deflator
CPI

12
120

201213
10
201415

110

WPI

8
100

6
4

201516

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

Q1

Q2

Q3

on used to constitute GDP at factor cost.

After adjusting for net indirect taxes
(that is, indirect taxes minus subsidies),
CSO used to arrive at GDP at market
price. In the NAS new series, CSO introduced a new intermediate concept of
GVA at basic prices, which is GDP at factor cost adjusted for net production taxes
(indirect taxes on production minus subsidies on production).1 Further, by adding
net indirect taxes on products (indirect
tax on products minus subsidies on
products) to GVA at basic price, CSO
arrived at GDP at market prices. After
introducing these changes, the CSO discontinued the practice of providing GDP
at factor cost by economic activities.
Instead, it now gives GVA at basic prices
and GDP at market prices. The CSO also
continues to provide GDP at market price
as per the older expenditure method.
In the above estimates, there are two
sets of results. The first one concerns
somewhat higher growth shown by GDP
at market prices than the growth rate
shown by GVA at basic prices. This excess
growth by the market price GDP, though
meagre, is entirely attributable to the
gradual acceleration in the growth of
indirect taxes net of subsidies. At constant
prices, the basic price GVA growth rates of
Table 2: Growth Rate of GDP at Market Price
Variable

Year
Q1

At constant price 201213

201314
201415
201516
At current price 201213
201314
201415
201516
Deflator
201213
201314
201415
201516

4.5
7.0
6.7
7.0
12.5
12.7
13.4
8.8
7.6
5.3
6.3
1.7

Note and Source: Same as Table 1.

80

Quarter-wise
Q2
Q3

6.3
7.5
8.4
7.4
14.8
14.7
13.6
6.0
8.0
6.7
4.7
-1.3

Q4

5.0
6.4
6.6

4.7
6.7
7.5

13.0
14.8
8.1

12.3
12.2
7.7

7.6
7.9
1.5

7.3
5.1
0.2

Q4

2011-12

4.9%, 6.6% and 7.2% in three successive

years of 201213 to 201415 are uniformly
followed by higher growth rates, though
minuscule, of 5.1%, 6.9% and 7.3%,
respectively. This is arithmetically possible only if there was some accelerated
growth in indirect taxes net of subsidies.
The second revealing result concerns
the higher growth recorded in the first
half as compared with the second half of
each year. Such a phenomenon of differences in growth in the two halves of
each year is noticed in both GVA at basic
prices and GDP at market prices. But,
interestingly, the difference in growth
between the two halves narrows down
in the series on GDP at market prices as
compared with the half-yearly growth
rate differences in the series on GVA at
basic prices. This narrowing of the difference is again attributable to indirect
tax collections. In a recent study by Rajakumar and Krishnaswamy (2015), it has
been shown that indirect tax buoyancies
are higher in the second half of a year
than in the first half.
GDP Deflators and Price Indices
In Figure 2, we have presented the movements in three price indicesthe GDP
deflator, Wholesale Price Index (WPI)
(y-o-y Basis, in %) (200405=100) and ConHalf Yearly Full Year sumer Price Index (CPI,
H1
H2
combined) (2012=100)
5.4 4.8
5.1
with each one indexed to
7.3 6.6 6.9
the first quarter of 201112.
7.5
7.0
7.3
The divergence of these
7.2
indices are more pro13.6 12.6 13.1
13.7 13.5 13.6
nounced in recent times.
13.5
7.9 10.5
As is well known, GDP
7.4
deflators are a conglom7.8
7.4
7.6
erate based on individual
6.0 6.5 6.3
deflators used for final
5.5 0.8 3.0
goods
consisting of con0.2
sumption goods, capital

2012-13

2013-14

2014-15

2015-16

goods, and services; they sometimes

cover output value indices, or WPI or CPI
themselves. While WPI is based on
wholesale price quotations, it covers
only commodities such as basic, intermediate and final goods. The CPI has
market prices as the reference point, but
its basket comprises consumption items
of goods as well as services. Given these
structural differences in the coverage of
these indices and their weighing diagrams, some differences may be noticed
in the economy-wide inflation rate based
on these three different indices.
We have worked out percentage
changes, y-o-y basis, in these price indices
(Table 3). Throughout, the CPI-based
inflation rate has remained higher than
the others. The inflation rate based on
the GDP deflator had been lower than
that based on CPI, but higher than that
Table 3: Percentage Change in Price Indices
(y-o-y Basis, in %)
Year

Quarter

GDP
WPI
CPI
Brent Oil
Deflator (200405=100) (2012=100) Prices

201213 Q1
Q2
Q3
Q4
201314 Q1
Q2
Q3
Q4
201415 Q1
Q2
Q3
Q4
201516 Q1
Q2
Q3$

7.6
8.0
7.6
7.3
5.3
6.7
7.9
5.1
6.3
4.7
1.5
0.2
1.7
-1.3

7.5
7.9
7.3
6.7
4.8
6.6
7.1
5.4
5.8
3.9
0.3
-1.8
-2.3
-4.5
-2.9

9.9
10.0
9.8
9.9
8.8
10.1
10.6
8.2
7.9
6.7
4.1
5.3
5.1
3.9
5.2

-7.6
-3.3
0.6
-5.1
-5.4
0.6
-0.8
-3.8
6.9
-7.7
-50.2
-43.8
-50.7
-39.3

$ relates to average of October and November.

Correlation Coefficient (Q1201213 to Q2201516).

GDP Deflator
1
WPI (200405=100) 0.984
CPI (2012=100)
0.956
Brent Oil Prices
0.926

0.984
1
0.941
0.950

0.956
0.941
1
0.851

0.926
0.950
0.851
1

Source: Brent Oil Prices is based on data extracted from

http://tonto.eia.gov/.
Others are based on data extracted from EPWRF India Time
Series.

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ECONOMIC NOTES

EPW Research Foundation

based on WPI. Reflecting its conglomerate nature, the GDP deflator always lies
between the WPI and CPI. Differences in
the inflation rate based on these three
different indices showed wide divergence during the last three quarters for
which data are available. The WPI inflation rate has been negative consistently
during the last three quarters going
from -1.8% to -4.5%, whereas CPI inflation rates have remained positive and
showed a marginal fall from 5.3% in the
fourth quarter of 201415 to 3.9% in the
second quarter of the current fiscal. But
the GDP deflator had moved up in the
first quarter of the current fiscal and
then fell to -1.3% in the second quarter.
Given the countrys overwhelming
dependence on imports of crude oil and
petroleum products, the WPI inflation
rate has remained low with declining
international oil prices, more so since the
third quarter of 201415.2 The average
daily crude oil prices that prevailed during OctoberNovember 2015 are 39.3%
less than what prevailed during the same
period the previous year.
In Table 3, we have also appended the
correlation coefficient (r) between the
rates of change in various deflators and
also in crude oil prices for the period from
first quarter of 201213 to second quarter
of 201516. The GDP deflator variations
have a close association with those of
WPI (r=0.984). The inflation rate based on
WPI is also closely associated with rate
of change in crude oil prices (r=0.950).
This suggests that the sharp decline in
oil prices in the third quarter of the
current year would have a favourable
impact on WPI as a whole.3
Deflators and PFCE
The deflators analysed above relate to
output deflators used to estimate GDP in
real terms. When the CSO arrives at GDP
following the expenditure method, it is
done at market prices. The two sets of
GDP estimatesone by the production
method and the other by the expenditure methoddo not generally tally
and produce discrepancies, which get
reflected in the consolidated accounts of
the nation built in the NAS. Those discrepancies arise essentially because of
the differences in deflators used to
Economic & Political Weekly

EPW

january 9, 2016

arrive at GDP numbers. On the expenditure side of GDP, at a preponderant share

of 57.5%, the PFCE becomes the most
crucial (Table 4), and the deflators used
in its estimation are sure to influence
the overall expenditure side estimation
of GDP at constant price. Hence, we have
taken a close look at the PFCE deflators
used by CSO.

Q1

Quarter-wise
Q2
Q3

As % of GDP at market price

201112 59.6 55.6
59.5

Full
Year

55.9

57.6

57.6

57.7

201213 58.5 57.9

60.2

55.1

58.2

57.6

57.9

201314 58.8 56.9

59.1

55.3

57.9

57.2

57.5

201415 58.5 56.2

57.8

55.5

57.4

56.6

57.0

201516 58.7 55.9

Growth rate (y-o-y basis, in %)
201213 2.5 10.8
6.2
201314 7.7

CPI combined
(Base=2012)

7.0
6.0
5.0
4.0
3.0

Implicit deflator
of PFCE

2.0
Q1

Half-yearly
H1
H2

Q4

(in %)

8.0

1.0

Table 4: Trends in PFCE at Constant Price

Year

Figure 3: Rate of Change (y-o-y) in CPI and

Implicit Deflator of PFCE

57.3
3.2

6.4

4.7

5.5

5.6

4.6

7.0

6.7

5.8

6.2

201415 6.2

7.1

4.2

7.9

6.6

6.0

6.3

201516 7.4

6.8

7.1

Note and Source: Same as Table 1.

To begin with, we have worked out

relative shares of each component of PFCE
corresponding to CPI items (Table 5).
Expenditure on food and non-alcoholic
beverages tend to dominate the entire
basket of PFCE, followed by transport
and gross rentals for housing. These
three items together account for a little
over half of total PFCE. Financial servicesrelated items, such as insurance and other
than insurance together, constitute the
remaining 4.6% of total PFCE.
Looking at various subgroups of CPI
and PFCE items, a near correspondence
between these two is noticed, except
for financial services. Thus, PFCE items

Q2

Q3

201415
2014-15

Q4

Q1

Q2

201516
2015-16

matching with subgroups of CPI account

for about 95% of total PFCE (Table 5).
However, a lack of correspondence is
seen when we compare, in the same
table, the CPI weights and relative
shares of PFCE items in total.
As CPI captures prices prevailing in
market transactions, the CPI-based inflation rate may be expected to have a close
approximation to changes in the implicit
deflator of PFCE. In fact, difference between implicit deflator of PFCE and CPIbased inflation rate used to be meagre at
about 0.6% in the first two quarters of
201415. Since then, such differences
have widened to about 2.5% during the
last three quarters (Figure 3). This may
be ascribed to the method of deflation
followed for various product items of
PFCE, many of which depend upon the
implicit deflator of gross value of output
or volume (Annexure 1, p 82).
It may be reiterated that households
spend money as per the price prevailing
in the market, and hence, CPI captures
market prices better. Moreover, given
the close matching of items included

Table 5: Matching of Items of CPI and PFCE

CPI Items and Weights
Sub-group Description
Code

1
2
3
4

Identical PFCE as per NAS

Weights

Food and beverages

45.86
Paan, tobacco and intoxicants 2.38
Clothing and footwear
6.53
Housing
10.07

5
Fuel and light
6.1.01 Household goods
and services
6.1.02 Health
6.1.03 Transport and communication
6.1.04 Recreation and amusement
6.1.05 Education
6.1.06 Personal care and effects
7
All Groups

6.84
3.8
5.89
8.59
1.68
4.46
3.89
100.0

Sl no*

Item Name

1
2
3
4.1+ 4.2

Share in Total
(201112)

Food and non-alcoholic beverages

Alcoholic beverages, tobacco and narcotics
Clothing and footwear
Gross rentals for housing (11.0) + Water supply and
miscellaneous services relating to the dwelling (0.3)
4.3
Electricity, gas and other fuel
5+ 12.5
Furnishing, household equipment and routine
household maintenance (3.6) + other services nec (9.3)
6
Health
7+8
Transport (14.9) + Communication (1.9)
9+11
Recreation and culture (1.1) + Restaurants and hotels (2.3)
10
Education
12.1+12.2 Personal care (1.2) + Personal effects nec (0.6)
All

29.17
3.09
6.99
11.36
3.71
12.84
3.54
16.80
3.38
2.68
1.84
95.40

* As per NAS publication.

Source: Based on data extracted from EPWRF India Time Series.

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under both CPI and PFCE, the change in

the implicit PFCE deflator may be
expected to move in tandem with
changes in CPI. If we then consider the
implicit deflator based on CPI for PFCE,
the resultant real GDP growth estimated
on the expenditure side would be different. To be more specific, the implicit
deflator of PCFE during the last four
quarters has fallen more than the CPI
and so the magnitude of growth of GDP
at market prices in these quarters, if
based on CPI, would be lower in real
terms than what has been currently
estimated.
Growth and Investment Dichotomy
Yet another distinct feature noticed in
the new NAS series is the persistent
decline in capital formation rates alongside acceleration in real GDP growth.
This issue has been highlighted (Rajakumar, Sawant and Shetty 2015) including by raising the larger question of the
misgivings regarding the possibilities of
the higher incremental capitaloutput
ratios in the face of high interest rates
and severe infrastructural bottlenecks.
The gross fixed capital formation (GFCF)
and gross capital formation (GCF), as
percentages of GDP, have persistently
fallen even in the latest half-year of
201516. The first half-year estimates
have fallen from the peak of 40.5% in
first half of 201112 to 33.4% in first
half of 201516 in GCF rates and from
34.8% to 29.9% in GFCF rates during the
same period. The annual estimates of
GCF rates have slipped from 38.9% to
33.1% between 201112 and 201415 and
Table 6: Investment Rate (as % of GDP at Market
Price, at Constant Price)
Year
Q1

Quarter-wise
Q2
Q3

Q4

Half-yearly
H1
H2

Gross Fixed Capital Formation

201112 34.7 35.0
32.4 32.7 34.8
201213 31.2 32.0
31.1 33.3 31.6
201314 29.8 31.7
30.8 30.7 30.7
201415 30.4 30.3
29.6 29.7 30.3
201516 29.8 30.1
29.9
Gross Capital Formation
(Includes Gross Fixed CF and changes in stock)
201112 40.3 40.7
37.2 37.8 40.5
201213 36.4 37.3
36.0 37.9 36.8
201314 32.9 34.7
33.5 33.7 33.8
201415 33.7 33.3
32.3 33.1 33.5
201516 33.2 33.6
33.4
Note and Source: Same as Table 1.

82

Full
Year

32.6 33.6
32.2 31.9
30.8 30.7
29.7 30.0

those of GFCF rates from 33.6% to 30%

(Table 6). This is the period when real
GDP growth rates have accelerated.
Summary and Implications
The analysis presented reveals that the
real growth rate has accelerated over
the years from 201213. A seasonality
factor has been noticed, with growth
invariably at a peak in the second quarter
and a trough in the fourth quarter.
Growth performance during the first
half of every year has been better than
the second half. The GDP deflator is
closely associated with WPI, which has
persistently been in the negative zone,
largely due to declines in international
oil prices. It was observed that the
real PFCE, a dominant component of
GDP at market prices, is subject to deflators of a mixed method. As PFCE reflects
household spending at market prices, if
CPI is used alternatively as deflator for
PFCE, the real growth of GDP at market
prices on the expenditure side would be
different. While the investment rate is
falling, the growth rate in real terms is
acceleratinga very odd phenomenon
in macroeconomic terms. More importantly, the nominal growth of GDP has
stood at 7.4% during the first half of the
current year, which appears abysmally
low compared to the expected 11.5%
of nominal growth for the full year in
the Union Budget 201516. The second
half of the current fiscal year will not be
any better, if the past trend holds good.
As WPI, and therefore the GDP deflator,
shows a preponderant influence of
international oil prices on which the
country has no control, the trailing
nominal growth is thus too alarming,
leaving no scope for complacency.

References
Central Statistics Office (2015a): Changes in
Methodology and Data Sources in the New
Series of National Accounts Base Year 201112,
Ministry of Statistics and Programme Implementation, New Delhi.
(2015b): Quarterly Estimates of Gross Domestic
Product for the Second Quarter (JulySeptember) of 201516, Press Note, 30 November.
Rajakumar, J Dennis and R Krishnaswamy (2015):
Surge in Union Government Revenues:
Indirect Tax Collection Leads Growth, Economic & Political Weekly, Vol 50, No 50,
12 December.
Rajakumar, J Dennis, Vijayata B Sawant and Anita
B Shetty (2015): New Estimates of Saving and
Capital Formation: Larger Numbers in a
Declining Trend, Economic & Political Weekly,
Vol 50, No 12, 21 March.

Annexure 1: Deflation Method Followed for PFCE

Group/Product Items
Sl no Name of the Group/Products

Method of Deflation

Primary goods

Base year prices (mostly

retail)

Manufactured products

CPI

Other products

CPI

Services:
Housing, water supply and
miscellaneous services
relating to dwelling

GVO at 201112 prices

Health services

CPI

Purchase of transport
Implicit price indices of GVO
services and maintenance of
personal transport equipment

Communication

Implicit price indices of GVO

Recreational and cultural

services

Implicit price indices of GVO

Education

Implicit price indices of GVO

Hotels and restaurants

Implicit price indices of GVO

Other miscellaneous services

Implicit price indices of GVO

Electricity, gas and other fuel:

Electricity

Production taxes are levies on factors of

productionland, labour or capital, irrespective of the volume of production like land
revenue. These taxes are in contrast to product
taxes which are wholly indirect levies imposed
per unit of products (CSO 2015a).
This is based on y-o-y change in the quarterly
average of the widely-used Europe Brent spot
price of crude oil (dollars per barrel, free-onboard basis).
WPI-based inflation rate in October and
November 2015 was in the order of -3.81% and
-1.99%, respectively. Index of WPI of fuel and
power (weight 14.9%) fell by (-)16.3% in October and (-)11.1% in November 2015; and of

Base year estimates are

moved forward using
consumption of electricity

Gas

Base year estimates are

moved forward using
consumption of gas

Kerosene

Base year estimates are

moved forward using
consumption of kerosene

Firewood

Base year estimates are

moved forward using
output of firewood at
201112 prices

Charcoal

Base year estimates are

moved forward using
production of charcoal

Gobar gas

Implicit price index of

production of gobar gas

Dung fuel, coke and

other fuel

Ratios of output to PFCE

have been used on the value
of output at constant prices

Notes

37.5 38.9
37.0 36.9
33.6 33.7
32.8 33.1

manufactured products (weight 65%) also

declined by (-)1.7% and (-)1.4%, respectively.
(Source: EPWRF India Time Series, accessed
from www.epwrfits.in).

CPI is Consumer Price Index; GVO is gross value of output.

Source: CSO (2015a: 17681).

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