Strong Economic Performance Has Benefited From Sound Macroeconomic Policies & Earlier Structural Reforms: IMF

New Delhi: The International Monetary Fund’s (IMF) Article IV annual assessment of India’s economic framework released last week states that the country’s strong economic performance has benefitted from sound macroeconomic policies and earlier structural reforms. It further states that despite external headwinds, growth is expected to remain resilient, with inflation remaining subdued.

However, oddly enough at the same time, it has given India’s national accounts statistics, which includes key figures such as Gross Domestic Product (GDP) and Gross Value Added (GVA), a C grade. Yet overall, across all data categories, India has received a sound B grade. There are four grades in total: A, B, C and D. The IMF’s criticism is focused on the methodology of India’s statistical system, but does not question the authenticity of the data.

“National accounts data are available at adequate frequency and timeliness and provide broadly adequate granularity. However, some methodological weaknesses somewhat hamper surveillance and warrant an overall sectoral rating for the national accounts of C,” the IMF stated. It points to “sizeable discrepancies” between GDP estimates obtained from the production or income side and those obtained from the expenditure side, treating these gaps as evidence that household consumption and segments of the informal economy are not fully captured.

It also highlights the limited use of seasonal adjustment and the scope for greater disaggregation of quarterly data. For example, it highlighted an “outdated base year” of 2011-12 on which the data is based, and the use of wholesale price indices as data sources for deflators due to a lack of producer prices indices. It points to “sizeable discrepancies” between GDP estimates obtained from the production or income side and those obtained from the expenditure side, treating these gaps as evidence that household consumption and segments of the informal economy are not fully captured.

Interestingly, an article in the Saviours magazine highlights that the IMF has overlooked the fact that India’s public finance and accounting systems are subject to the scrutiny of the Comptroller and Auditor General, an independent constitutional authority mandated to audit all receipts and expenditure of the Union and the States. CAG reports are tabled in Parliament and state legislatures and examined by Public Accounts Committees and other standing committees that cut across party lines.

The government borrowing is also conducted through the Reserve Bank of India within explicit statutory and rule-based limits. Budget documents, RBI publications, and CAG audit reports cross-validate one another which reflect the soundness of India’s National Accounts system. The article further points out that direct and indirect tax collections are tracked through sophisticated administrative and IT systems, reconciled with treasury accounts and reported in a timely manner.

Similarly, corporate accounts are subject to statutory audit under company law and, for listed firms. National accounts, however imperfect their methodology, are thus built upon a backbone of verifiable rupee flows. The article also underscores that much of the problem arises due to external observers viewing India’s informal economy as a vast statistical blind spot, that is beyond reliable measurement. However, this view is outdated and misleading as the country’s informal economy has been more formalised over the years with links to the tax, banking and regulatory systems.

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