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Why India’s New GDP Math Lacks Credibility

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India’s back-series GDP (gross domestic product) data, released by the NITI Aayog just four months before the 2019 general elections, turn the basic laws of macroeconomics on their head.

Here’s one that is most intriguing. The data show lower GDP growth during the UPA years, which is when the gross investment to GDP ratio was peaking at 38%. And conversely, they show higher GDP figures during the four years of Modi-led NDA-II government, which is when gross investment to GDP ratio was at its lowest at 30.3%.

Economic theory has always held higher investments lead to higher GDP. So how can GDP grow faster when the investment to GDP ratio has fallen?

Technically, the only circumstance in which this can happen is when the economy’s productivity or the ‘Incremental Capital Output Ratio’ (ICOR) improves equally dramatically. Simply put, it means the economy generates a lot more output for the same amount of capital employed. There is no sign of that happening during the NDA-II’s four years in which productivity was in fact negatively........

© The Wire