GVA-GDP Divergence: Storm in a tea cup? CEA dismisses concerns by saying 'it’s nothing new'

Government data showed fertiliser subsidies in the October-December quarter declined by nearly 70% to ₹307 billion ($3.7 billion) from the same period a year ago, said news agency Reuters.

However, divergence between the gross value added (GVA) and the GDP is at a multiple year high with quarterly GVA clocking a 6.5% growth against the economy expanding by 8.4%. "The wide divergence between the GVA and GDP in the October-December quarter was mainly due to a sharp fall in subsidies in that quarter largely because of lower payouts on fertilizer subsidies like Urea," a senior government official said on Friday.

While this is one of the reasons cited, the jump in growth of indirect taxes is also extremely visible. From growing at a pace of 8% in the first quarter to 12.8% in the second quarter, tax growth zoomed to 32% in the third quarter. In recent years the only time when tax growth was higher was in the first quarter of FY23, when taxes grew by 37.6% and the GDP expanded by 12.8%. In that quarter also the divergence between the GVA and the GDP was 150 basis points, with GVA growing at 11.3%. Although in the quarter gone by this fiscal, the divergence has widened to 190 basis points as Food and Fertliser subsidies are much lower now.

In the meanwhile, India’s Chief Economic Advisor Nageswaran on Thursday clarified there is nothing new in the GVA vs GDP gap , “ So the discrepancy has always been there since the time the GDP data has been there, and this time infact the discrepancy in the expenditure estimate is negative, which means GVA growth numbers are high ….if the GDP by expenditure methodology is able to match the GVA numbers it would be even higher . And naturally for the expenditure approach data comes over time, it’s like you have 5 or 6 different estimates of GDP. So this is nothing new."