RBI MPC member questions 8.2% Q1 GDP growth numbers Just a week after Govt data pegged first-quarter GDP growth at a healthy 8.2%, Ravindra Dholakia, a member of RBI's Monetary Policy Committee, has flagged off a possible overestimation of the growth in the manufacturing sector. India probably overestimated manufacturing output while calculating economic growth that topped 8 percent in the June quarter, according to Ravindra Dholakia.

An external member of the Reserve Bank’s monetary policy committee (MPC) Ravindra Dholakia has refuted the methodology in the new GDP series with the 2011-12 base that has estimated that India ’s actual growth is higher than indicated in the older seriesProf Dholakia who is a faculty at the Indian Institute of Management at Ahmedabad, in a paper written for academic magazine, Economic and Political Weekly, along with R Nagaraj, faculty at the Indira Gandhi Institute of Development Research, Mumbai and Manish Pandya of the Directorate of Economics and Statistics, Government of Gujarat have refuted the Central Statistics Office’s (CSO) claims that the data used from ASI to compile the GDP numbers do not capture a lot of activitiesAs per the new methodology endorsed by the Central Statistics Office, which is primarily responsible for releasing GDP numbers, the new series better captures value addition. This is because data from the annual survey of industry (ASI) reportedly left out activities outside the factory of an enterprise.“This claim is probably not true, as is evident from closer examination of a sample of ASI primary schedules” say Dholakia and others in the paper. “The large observed divergence gave rise to serious doubts about the veracity of the new estimates. Moreover, the reported high growth rates were at variance with other macroeconomic correlates” say the authors. According to the new methodology, India’s GDP growth is shown at 10.08% in FY’07 under the back-series calculation, up from 9.57% estimated earlier.In the older series the registered manufacturing sector output, accounting for two-thirds of the manufacturing value added, were estimated using the ASI, whose primary unit of data collection is a factory (or an establishment). The CSO has argued that this method failed to capture output produced by a firm outside of factories and hence it resulted in an underestimation. The latest revision has, therefore, replaced the ASI with the corporate financial database which uses a firm as the primary unit of data collection.The article examines if the CSO’s claims about the shortcomings of ASI are true. And a careful study of the ASI methodology indicates that the official contention is largely incorrect. “The ASI, in fact, captures employment, investment, and value added of activities outside of the factory, such as the head office, R&D, sales and services, that are part of the enterprise in most of the cases” they say.The government has defended the new approach. "Every single methodology will have some quirks...Now as long as it is technically correct and we are aware of this quirk in it, it's acceptable” said Sanjeev Sanyal, principal economic advisor to the finance ministry in an interview to an news wire agency. “ Up to 2002, it shows all growth rates depressed and after 2002 it increases all growth rates”