IMF says GDP forecast based on market price, not factor cost

A day after cutting India's growth forecast to an abysmally low 3.8% in FY14, the International Monetary Fund on Thursday clarified that the projection was based on market prices and not on the factor cost which is being used by the government and analysts in India.

A day after cutting the country's growth forecast to an abysmally low 3.8% in FY14, the International Monetary Fund (IMF) on Thursday clarified that the projection was based on market prices and not on the factor cost which is being used by the government and analysts in India.

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"For India, we wish to clarify the basis on which our forecasts are produced. To be comparable across countries, the IMF world economic outlook projections are done at market prices, which differs somewhat from the factor cost definition used by the government and most analysts.

The IMF had yesterday projected the domestic economic growth at 3.8% in FY14 against 5.6 % forecast in July.

The IMF said GDP growth estimates at market prices equal the factor cost estimates, minus subsidies but including indirect taxes.

In the first quarter of FY14, real GDP growth estimated by the Central Statistics Office stood at 4.4% on a factor cost basis, and at 2.4% on a market price basis, the IMF said.

"In India, factor cost GDP generally provides a more accurate picture of economic developments," it added.

According to the IMF, GDP growth at factor cost in FY14 will be 4.3 % while growth at market prices will be 3.8%.