Published On: Fri, Jan 29th, 2016

New GDP formula fails to reflect actual growth: Raghuram Rajan

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Ahead of the Budget, RBI governor Raghuram Rajan on Friday warned against generating economic growth through additional debt saying that any deviation from the fiscal consolidation path will hurt stability of the economy.

Rajan said that macroeconomic stability during the global turmoil cannot be risked and the government and RBI should continue to bring down inflation.

GDP growth rate in India appear strong because of a change in statistical methods that seek to capture more evidence of economic activity. Other barometers such as bank credit growth, jobs and consumer demand, however, paint a less healthy picture.

The new formula to calculate growth, based on market prices, shows India is the fastest-growing major economy in the world. He said there is a need to avoid overlaps for better computation of numbers so as to capture net gains to the economy.

“There are problems with the way we count GDP which is why we need to be careful sometimes just talking about growth,” Rajan said.

He also discounted claims of India overtaking China on growth saying such talk does not make much sense. ”With five times India’s GDP, our 7 per cent economic growth equals less than 1.5 per cent of China’s growth in terms of its impact on global growth.

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