Readers might remember that very recently India revised the way the WPI is calculated. As per the new methodology of calculation, the inflation turns out to be lower than what it would have been under the old methodology. This adds a positive deflator effect to the final GDP numbers. In fact, if the readers go through the press release of MOSPI, they will find that the Q1 numbers have also been revised upward, and that is because of the deflator effect. But that that is only a small reason. The bigger reason is quality of data dished out by the government.
After the Q1 numbers were released, there was a lot of hue and cry raised by the economist (yours truly included) on the quality of the number. While the GDP growth at factor cost (read production side) was up by 8.8%, GDP growth at market price (read expenditure side) was a mere 3.7%.
The next day, the government acknowledged the fact that their number was wrong and that they used a wrong deflator. As a result, Q1 GDP by expenditure side was revised upward substantially. Within that, growth in private expenditure (read consumer demand) was also revised upward. Mind you, consumption exp account for more than 55% of India’s GDP. Hence, slowdown in consumer demand (as was reflected by the data all these time) should be a major concern. Finally, production should be matched by demand. Assuming that the latest data is correct, now there is increased evidence that demand is better than what has been assumed earlier. Hence, the 8.9% growth is understandable.