Statistical revisions add shine to India growth

India's attempts to catch up with China's rate of economic expansion have received an unexpected boost from statistical revisions that dramatically raised estimates of the country's gross domestic product growth during the past two years.

Interest in the relative performance of Asia's two largest emerging economies has been stoked by forecasts suggesting India is on course to overtake its larger neighbour next year, with the International Monetary Fund projecting Indian growth at 6.5 per cent in 2016 while China slows to 6.3 per cent.

But the recent growth gap between the two nations now appears to have been smaller than previously estimated, after India's main statistical body released revised estimates on Friday showing the economy growing by 6.9 per cent during the 2014 financial year, up from the previous figure of 4.7 per cent.

The new data show India recovering rapidly following its economic slowdown, and bring the country's rate of expansion much closer to that of China, which grew by 7.4 per cent during the 2014 calendar year, according to IMF data.

Indian growth for the financial year ending in March 2013 was also revised from 4.7 per cent to 5.1 per cent in the changes announced by India's Central Statistical Organisation.

Economist Shilan Shah at consultants Capital Economics described the described the upward revisions as "astounding", but questioned the extent to which India had in fact performed "far better" than most economists had realised in the years prior to the election of Prime Minister Narendra Modi last May.

"If true, this implies there is much less room for a substantial pick-up in growth without stoking inflation," Mr Shah wrote in a note. "But this picture of health is hard to square with numerous other indicators that point to increasing slack in the economy."

The revisions followed changes in the way Indian statisticians gauge growth that were designed to bring the country into line with international norms, including a one-off updating of the base year used for GDP calculations and improvements in survey techniques.

Prior to the revisions, India had appeared to be making a gradual recovery from a prolonged slump under its previous government, during whose tenure growth rates almost halved having touched nearly 9 per cent in 2011.

India's economy expanded by 5.3 per cent during the third quarter of this financial year, although this figure is also now likely to be revised, alongside data for the first two quarters, when India publishes its latest GDP figures on February 9.

While one-off revisions to historical data are unlikely to have an effect on future growth rates, the changes could provide a boost to Mr Modi by helping his government meet a tough target of cutting India's fiscal deficit to 4.1 per cent of GDP by the end of March, analysts said.

"These revisions should not make much difference to what happens next year in terms of growth," said Surjit Bhalla, an economist at New Delhi-based Oxus Investments. "The biggest implication is that the fiscal deficit target should now be more easily met, because the GDP base for that 4.1 per cent target will have changed."

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