India Dethrones China As The Economy: Growth Story With A Twist Fastest-Growing

Ministry of Statistics (India) announces its growth numbers every quarter and understandably it generates quite a buzz all around the world. Recently World Bank announced that India would overtake China’s GDP growth rate in the next 2 years. Surprisingly, however, this forecast seems to have been realized 2 years earlier, going by the new numbers released by the ministry. This means, India has already dethroned China as the world’s fastest growing economy, much ahead of the industry pundits’ expectations. How has this happened? Thanks to the latest statistics and the new methodology released by the Ministry of Statistics that has revised the quarter growth percentage of India.

New Methodology

So how exactly is the new way of calculating GDP different from before? Firstly, the base year at which price levels are derived from has been updated from 2004-2005 to 2011-2012. Secondly, GDP numbers used to be calculated at factor cost (costs incurred to produce a good/service) which will now be calculated at market prices (price paid to the producer by the consumer when he buys a good/service). This would seem a natural transition given that most countries and renowned international agencies calculate GDP using market prices.

Contributing Sectors

The biggest contributing sectors to Indian GDP by “Gross Value Add” as reported by Ministry of Statistics (India) are as follows: Financial, real estate and services (21%), Trade, hotels & communication (19%), Manufacturing (18%), Agriculture, forestry & fishing (16%), Public sector (13%). Chart below explains how these sectors have behaved in FY 2013-2014 & FY 2014-2015 respectively.

As can be seen there has been significantly more activity during the last financial year than in FY 2013-2014 in sectors such as Finance, services, manufacturing, real estate, public sector, construction & utilities.The China comparison and Geopolitics While analysts at World bank, IMF, Goldman Sachs predicted that India would outpace china’s GDP growth by 2016, the new methodology of calculating GDP along with China’s slow economic growth has made sure that India has achieved this objective this year itself as shown below.