India’s GDP is literally unbelievable

Bablu Das, a 46-year-old Indian artist, walking on stilts for an advertisement campaign of a coming tourism fair in the eastern India city of Calcutta.
Reuters/Reuters Photographer

India’s economy grew by 7.9% year-over-year in the first quarter of 2016, according to the country’s Statistics Ministry.

That’s an increase from the fourth quarter’s 7.2% print.

And it’s above economists’ expectations of 7.5% gross-domestic-product growth, according to the Bloomberg consensus.

But while this GDP figure makes India stand out among its worse-off BRIC emerging-economy peers, there are some doubts about its credibility.

“There is some evidence that India’s economy has picked up speed recently but today’s remarkably strong GDP data are hard to believe,” Capital Economics’ India economist Shilan Shah wrote in a note to clients.

“The short point is that -as we have cautioned since the release of the revised GDP series last year – weshould take the official GDP data, and the world-beating rates of growth they aresuggesting, with a pinch of salt.”

Shah notes thatwhile there have been some signs of growth recently, including strongauto salesand cargo volumes,India’s overall datadoesnot exactly add up.

He points out that Tuesday’s data showed that manufacturing grew by 9.3% year-over-year last quarter, but monthly data on industrial production showed that output rose by only 0.2% year-over-year in Q1. Moreover, growth in bank lending is near its slowest rate in a decade.

Plus, Bloomberg’s Vrishti Beniwal noted that “capacity utilization is low and private investment is weak.”

In short, “these figures are hard to align with other evidence on the economy’s health,” Shah added.

Capital Economics