India grew 6.9% last year, but no one's sure what that means

[NEW DELHI] India changed its GDP calculations and caught everyone by surprise on Friday evening, with the revisions suggesting Asia's third-largest economy is in much better shape than we thought it was. Or is it?

Subdued expansion was at the heart of Prime Minister Narendra Modi's election win last May, when he promised to jumpstart growth from a near decade-low.

Now we're told the economy wasn't actually sputtering along at 4.7 per cent last fiscal year through March 2014; instead, it was surging 6.9 per cent. The revision takes India closer to China's 7.4 per cent, the fastest-growing major economy in the world, but without a breakdown to show how.

The input data for these numbers isn't available beyond a few years, so even though the government has promised more details by the end of February, we probably could be left with incomparable figures.

The new methodology uses market prices rather than factor costs, and a larger dataset that includes reporting from more companies and government bodies. The input data for these numbers is unavailable beyond a few years.

While a part of the new method - using prices from purchasers rather than producers - brings the Indian data in line with the International Monetary Fund and global counterparts, economists appear divided: HSBC Holdings Plc's Pranjul Bhandari and UBS Group's Ed Teather lament the lack of historical numbers, while Morgan Stanley's Chetan Ahya questions the quality of the data.

DBS Bank's Radhika Rao and Capital Economics's Shilan Shah say the revisions appear out of sync with other indicators such as factory output. Goldman Sachs, on the other hand, says the new dataset's manufacturing boost was a needed correction.

The consequences of the inability to accurately chart a trend could be immediate. The central bank, which meets tomorrow to decide whether to cut rates for a second time in three weeks, had forecast growth of 5.5 per cent for the current fiscal year. Based on that, it had predicted inflation will stay below-target until January 2016.

Now, no one's sure. "GDP revised up or down?" Citigroup Inc economist Rohini Malkani wrote in a report on Monday. "Depends on how one looks at it."

BLOOMBERG