'IMF growth estimate of 9.4 pc for 2010 not surprising'
IMF projections that the Indian economy will expand by 9.4 per cent in 2010 should not surprise anyone as the Fund uses different methodology of calculating growth, says a key official with the multi-lateral lending agency.business Updated: Aug 22, 2010 11:22 IST
IMF projections that the Indian economy will expand by 9.4 per cent in 2010 should not surprise anyone as the Fund uses different methodology of calculating growth, says a key official with the multi-lateral lending agency.
While most other projections are based on gross domestic product at factor cost, IMF estimates economic growth on the basis of GDP at market price, IMF Executive Director Arvind Virmani said.
Whereas GDP based on market price takes into account taxes while calculating value of goods and services in the economy, the factor cost does not.
"Growth rates in GDP at market price and factor cost adjust themselves in a year or two," explained Virmani, who went to IMF last year after serving as India's Chief Economic Advisor.
"For the last two years, GDP growth rates at market price were lower than at factor cost. So, this year it tends to be higher than factor cost," he added.
Raising of Indian growth projections to 9.4 per cent in 2010 by IMF, from its earlier estimate of 8.8 per cent, surprised many people because the economy is yet to fully recover from the impact of financial crisis and return to high growth path.
Besides, as the Indian economy (based on the conventional factor cost) grew by 8.6 per cent in the first quarter of 2010, the IMF prediction meant that it would have to expand much beyond 9.4 per cent through the rest of the year.
The Finance Ministry expects the economy to grow by 8.5 per cent this fiscal, which did not compare that well with the IMF projections of 9.4 per cent for this calendar year.
At the outset, IMF estimates seemed surprising also because the Fund is believed to be too conservative and has been generally pegging India's economic growth at less than the official predictions.
In fact, Finance Minister Pranab Mukherjee seemed to be too pleased with even IMF's earlier projections 8.8 per cent growth this calendar year.
"This year, my ministry has predicted a growth rate of 8.5 percent. I notice that the IMF has challenged our prediction. For once, however, I am not going to contest the IMF assessment. The IMF believes that the Indian economy will grow at 8.8 percent," Mukherjee had said at the US-India CEO Forum in Washington.
Based on the conventional method, Indian economy grew by 6.7 per cent during 2008-09, while estimated on the basis of market prices, it expanded by just 5.1 per cent.
The advance estimates of 2009-10 pegged economic growth at 7.2 per cent based on factor cost, but 6.8 per cent based on market prices.
However, actual data revealed that Indian economy grew by 7.4 per cent last fiscal based on factor cost, and 7.7 per cent on market prices.