rkjindal91
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Did India grow faster than China in 2010?
Apr 18, 2011, 06.52am IST TNN [ Chidanand
Rajghatta ]
WASHINGTON: Crouching Tiger snuck past
the Fiery Dragon?
The intense debate about whether
lumbering India can overtake China's red
hot economy has been fed more fuel with
The Economist suggesting that it may
already have happened in 2010 "without
anyone as much as noticing".
On the face of it, China grew by 10.3% last
year, comfortably outpacing India's
estimate of 8.6%. But the IMF's latest World
Economic Outlook released earlier this week
says that India grew by 10.4% in 2010.
How can that be? Here's how the acclaimed
journal crunches the numbers to arrive at
the same conclusion. India typically reports
its GDP "at factor cost", meaning 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",
i.e. by adding up all the spending (including
taxes) on domestically produced goodies.
So, says The Economist in a blog post, you
have to factor in a couple of things into the
Indian GDP: taxes and subsidies. A sales tax
adds to the amount you have to spend on a
good. 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.
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. So if New Delhi adopts the same
metric as other countries to measure its
GDP, i.e., by expenditure, it lifts India's
growth to 10.36% in 2010. "That's fully
0.06 percentage points faster than China. Jai
Hind!" says The Economist.
Not everyone buys into the conclusion.
"Brilliant. So all India has to do is increase
indirect taxes every year by 1000% and
her GDP will go to the moon," one reader
wrote in snarkily. Another maintained that
exchange rate is a more important factor
than taxes, pointing out that the IMF
estimates growth rates by converting the
GDP of countries in local currencies to dollar
at market exchange. While India's currency
appreciated 6.4% in 2010, from Rs 48.85
per dollar in 2009 to Rs 45.93 in 2010,
China's Renminbi appreciated only 0.9%,
from 6.84 per dollar in 2009 to 6.77 in
2010. So India's GDP got a push that was
higher than China's.
The Economist itself had a tongue-in-cheek
take on the whole India versus China
growth issue, saying that given the fervid
debates "it would be ironic if the moment
(of India overtaking China) had already
come and gone, without any fuss, fanfare
or felicitation".
Apr 18, 2011, 06.52am IST TNN [ Chidanand
Rajghatta ]
WASHINGTON: Crouching Tiger snuck past
the Fiery Dragon?
The intense debate about whether
lumbering India can overtake China's red
hot economy has been fed more fuel with
The Economist suggesting that it may
already have happened in 2010 "without
anyone as much as noticing".
On the face of it, China grew by 10.3% last
year, comfortably outpacing India's
estimate of 8.6%. But the IMF's latest World
Economic Outlook released earlier this week
says that India grew by 10.4% in 2010.
How can that be? Here's how the acclaimed
journal crunches the numbers to arrive at
the same conclusion. India typically reports
its GDP "at factor cost", meaning 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",
i.e. by adding up all the spending (including
taxes) on domestically produced goodies.
So, says The Economist in a blog post, you
have to factor in a couple of things into the
Indian GDP: taxes and subsidies. A sales tax
adds to the amount you have to spend on a
good. 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.
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. So if New Delhi adopts the same
metric as other countries to measure its
GDP, i.e., by expenditure, it lifts India's
growth to 10.36% in 2010. "That's fully
0.06 percentage points faster than China. Jai
Hind!" says The Economist.
Not everyone buys into the conclusion.
"Brilliant. So all India has to do is increase
indirect taxes every year by 1000% and
her GDP will go to the moon," one reader
wrote in snarkily. Another maintained that
exchange rate is a more important factor
than taxes, pointing out that the IMF
estimates growth rates by converting the
GDP of countries in local currencies to dollar
at market exchange. While India's currency
appreciated 6.4% in 2010, from Rs 48.85
per dollar in 2009 to Rs 45.93 in 2010,
China's Renminbi appreciated only 0.9%,
from 6.84 per dollar in 2009 to 6.77 in
2010. So India's GDP got a push that was
higher than China's.
The Economist itself had a tongue-in-cheek
take on the whole India versus China
growth issue, saying that given the fervid
debates "it would be ironic if the moment
(of India overtaking China) had already
come and gone, without any fuss, fanfare
or felicitation".
. Its TOI anyway....
