Raghuram Rajan dislikes new GDP formula

January 29, 2016 10:14
Raghuram Rajan dislikes new GDP formula

India needs a better methodology to capture growth measured in terms of gross domestic product (GDP), RBI governor Raghuram Rajan opined.

He says that there is a need for the better computation of numbers to avoid overlaps and capture the 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.

As per the new formula of calculating the growth based on market prices, it is showing that, India is the fastest growing major economy in the world.

On the other hand, the critics opine that, the headline growth rates appear strong, because of the change in statistical methods that seek to capture more evidence of economic activity.

The analysts even opined that, the parameters like bank credit growth, jobs and consumer demand are weak.

“We have to be a little careful about how we count GDP because sometimes we get growth because of people moving into different areas. It is important that when they move into newer areas, they are doing something which is adding value. We do lose some, we gain some and what is the net, let us be careful about how we count that,” Rajan said, speaking to students at the Indira Gandhi Institute of Development Research.

There are many suggestions from various quarters on the ways to calculate GDP in a better way and we should take those seriously, Dr Rajan noted.

More than in nominal terms, the economy is growing at a slower pace in the real terms, for the first time, as per the new GDP methodology. In the September quarter, the real GDP clipped at 7.4 per cent, while the nominal GDP grew much lower at 6 per cent.

Rajan even stressed on the employment and even took a middle line to say that policies need to be geared up to face the onslaught of technological innovations.

“We have to make sure that our policies are geared up such that we will create the appropriate playing field to find new jobs. We should not create a distorted playing field where at the end of the day the wrong kinds of jobs emerge,” he said.

By Phani Ch

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