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Winning the growth World Cup
Apr 15th 2011, 17:44 by S.C. | HONG KONG
DID India grow faster than China last year without anyone so much as noticing? Many pundits, including this newspaper, have speculated about when India's growth might outpace China's. (The debate even spawned a meta-debate in India about whether the debate was worth having.) So it would be ironic if the moment had already come and gone, without any fuss, fanfare or felicitation.
China grew by 10.3% last year, a punishing pace to beat. India, according to the advance estimate by its Central Statistics Office (CSO), grew by 8.6%. Fast, but not fast enough. But today a colleague pointed me to the IMF's latest World Economic Outlook (Table 1.1), released earlier this week. It says that India grew by 10.4% in 2010. How can that be?
India has two idiosyncrasies in the way it reports its GDP figures. First, it reports growth for the fiscal year, not the calendar year. So the 8.6% estimate refers to the 12 months ending on March 31. That in itself makes little difference. But the second idiosyncrasy is more important. India typically reports its GDP "at factor cost". That means it adds up all the income earned in the course of producing the country's goods and services. Other countries, including China, typically report their GDP "by expenditure", adding up all the spending on domestically produced goodies. Since every purchase is a sale, expenditure should equate to income: every rupee spent by one person is a rupee earned by someone else. But a couple of things get in the way: taxes and subsidies.
A sales tax adds to the amount you have to spend on a good. This boosts measures of GDP by expenditure, relative to income-based measures. A subsidy has the opposite effect.*
If these taxes and subsidies remained steady as a percentage of output, they would not affect the growth rate of GDP, even if they do affect its level. But in India net indirect taxes rose from 7.5% of output in 2009 to 9.2% in 2010, boosting the growth rate of GDP by expenditure for that year.** That was enough to lift India's growth by this measure to 10.36% in 2010. That's fully 0.06 percentage points faster than China. Jai Hind!
* A numerical example might help to illustrate the difference. In the first three months of 2010, India's GDP at factor cost amounted to 12,051 billion rupees. But the buyers of that output paid an additional 1,888 biilion in indirect taxes, adding to the expenditure measure of GDP. They also benefited from 544 billion in subsidies, subtracting from the expenditure measure. The net result was that India's GDP by expenditure in January-March 2010 was 13,395 billion (=12,051+1,888-544).
** All the figures required to reach this conclusion were available from February 28, when the CSO released its estimates of GDP (at factor cost and by expenditure) for the third quarter of last fiscal year, otherwise known as the fourth quarter of 2010.
http://www.economist.com/blogs/freeexchange/2011/04/india_outpaces_china
Apr 15th 2011, 17:44 by S.C. | HONG KONG
DID India grow faster than China last year without anyone so much as noticing? Many pundits, including this newspaper, have speculated about when India's growth might outpace China's. (The debate even spawned a meta-debate in India about whether the debate was worth having.) So it would be ironic if the moment had already come and gone, without any fuss, fanfare or felicitation.
China grew by 10.3% last year, a punishing pace to beat. India, according to the advance estimate by its Central Statistics Office (CSO), grew by 8.6%. Fast, but not fast enough. But today a colleague pointed me to the IMF's latest World Economic Outlook (Table 1.1), released earlier this week. It says that India grew by 10.4% in 2010. How can that be?
India has two idiosyncrasies in the way it reports its GDP figures. First, it reports growth for the fiscal year, not the calendar year. So the 8.6% estimate refers to the 12 months ending on March 31. That in itself makes little difference. But the second idiosyncrasy is more important. India typically reports its GDP "at factor cost". That means it adds up all the income earned in the course of producing the country's goods and services. Other countries, including China, typically report their GDP "by expenditure", adding up all the spending on domestically produced goodies. Since every purchase is a sale, expenditure should equate to income: every rupee spent by one person is a rupee earned by someone else. But a couple of things get in the way: taxes and subsidies.
A sales tax adds to the amount you have to spend on a good. This boosts measures of GDP by expenditure, relative to income-based measures. A subsidy has the opposite effect.*
If these taxes and subsidies remained steady as a percentage of output, they would not affect the growth rate of GDP, even if they do affect its level. But in India net indirect taxes rose from 7.5% of output in 2009 to 9.2% in 2010, boosting the growth rate of GDP by expenditure for that year.** That was enough to lift India's growth by this measure to 10.36% in 2010. That's fully 0.06 percentage points faster than China. Jai Hind!
* A numerical example might help to illustrate the difference. In the first three months of 2010, India's GDP at factor cost amounted to 12,051 billion rupees. But the buyers of that output paid an additional 1,888 biilion in indirect taxes, adding to the expenditure measure of GDP. They also benefited from 544 billion in subsidies, subtracting from the expenditure measure. The net result was that India's GDP by expenditure in January-March 2010 was 13,395 billion (=12,051+1,888-544).
** All the figures required to reach this conclusion were available from February 28, when the CSO released its estimates of GDP (at factor cost and by expenditure) for the third quarter of last fiscal year, otherwise known as the fourth quarter of 2010.
http://www.economist.com/blogs/freeexchange/2011/04/india_outpaces_china
