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By:

Amey Chitale

28 October 2024 at 10:59:02 am

GDP Surge Masks a Complex Economic Picture

Robust GDP growth masks uneven consumption, capital-flow pressures and a widening debate over the methodology of India’s economic data. AI generated image India’s growth outlook is increasingly influenced by interconnected geopolitical and environmental risks. The recent Gulf conflict exposed the country’s dependence on imports, as disruptions in the Strait of Hormuz and Red Sea constrained global trade routes and energy supplies. While India managed to diversify energy sourcing, the shock...

GDP Surge Masks a Complex Economic Picture

Robust GDP growth masks uneven consumption, capital-flow pressures and a widening debate over the methodology of India’s economic data. AI generated image India’s growth outlook is increasingly influenced by interconnected geopolitical and environmental risks. The recent Gulf conflict exposed the country’s dependence on imports, as disruptions in the Strait of Hormuz and Red Sea constrained global trade routes and energy supplies. While India managed to diversify energy sourcing, the shock disrupted the favourable external environment that had supported economic expansion. Meanwhile, concerns over an El Niño-induced impact on agricultural production have heightened inflation risks. Despite global uncertainties, India demonstrated remarkable resilience during the April-June quarter. Real GDP grew by 7.8 percent, while nominal GDP expanded by 10.3 percent to Rs. 88.27 trillion, up from Rs. 80 trillion in the corresponding period of the previous year. This performance comfortably surpassed the RBI’s projection of 7.0 percent and highlighted the strength of domestic demand. The figures indicate that India’s underlying economic momentum remains sufficiently robust to withstand external headwinds and provide a strong start to FY27. The primary sector expanded just 2.9 percent, with agricultural growth moderating to 3.6 percent (from 4.4 percent a year earlier) and mining contracting 2.4 percent, partly due to weather-related disruptions. In contrast, the secondary sector grew a robust 8.6 percent, led by manufacturing at 9.2 percent, while services remained the strongest contributor, expanding 10.0 percent, driven by financial, real estate, IT, and professional services. Investment activity was particularly encouraging, with Gross Fixed Capital Formation rising 11.9 percent, up sharply from 5.8 percent last year, reflecting a revival in private capital expenditure supported by stronger corporate balance sheets and credit growth. Meanwhile, Private Final Consumption Expenditure grew by 7.1 percent, reflecting steady household spending. The external sector also aided expansion, with exports up 12.0 percent and imports down 1.1 percent, providing a favourable boost through net exports. Robust Expansion High-frequency economic indicators strongly validate the reported momentum. Gross GST collections rose 14.8 percent, supported by strong direct tax receipts and e-way bill growth, indicating healthy formal-sector consumption, improved tax compliance, robust logistics activity, and resilient corporate profitability. The digital economy continued its rapid expansion, with UPI transactions reaching a record 22.6 billion, up 23.5 percent year-on-year. Demand indicators were equally encouraging, with passenger vehicle sales rising 16.3 percent, commercial vehicle sales 18.3 percent, and three-wheeler sales 29.7 percent. Meanwhile, power consumption and railway freight loading grew 1.8 percent and 3.4 percent, respectively, reinforcing evidence of broad-based economic expansion. While the headline GDP performance has been stellar, peeling back the layer of the macroeconomic onion reveals some faultlines. Despite India’s appeal as a global investment destination, cross-border capital flows present a mixed picture. While gross FDI inflows exceeded USD 64.7 billion, net FDI fell sharply to USD 7.65 billion in FY26, reflecting significant repatriations, disinvestments, and capital withdrawals. Portfolio flows remained highly volatile, with net FPI outflows of USD 16.5 billion year-to-date in 2026. This persistent capital flight exerted pressure on the currency, contributing to a sharp depreciation of the Indian Rupee against the US Dollar, thereby increasing imported inflation and external debt servicing costs. K-shaped Recovery A key vulnerability in the economy is the emergence of a K-shaped recovery, where growth remains uneven across income groups. While PFCE grew by 7.1 percent, consumption has been concentrated in premium segments, with strong demand for SUVs and luxury products contrasting with weak growth in entry-level two-wheelers and mass-market FMCG goods. The slowdown in agricultural GVA growth to 3.6 percent has constrained rural incomes and purchasing power, leaving many lower-income households behind even as corporate profits, banking performance, and equity markets remain strong. While nominal GDP expanded by 10.3 percent and real GDP by 7.8 percent, the implied GDP deflator stood at just 2.5 percent, mechanically elevating real growth estimates. This appears inconsistent with the inflation experienced by consumers, as CPI inflation averaged between 3.9 percent and 5.0 percent, with food prices exerting even greater pressure on household budgets. The gap arises because the GDP deflator is influenced by broader wholesale and commodity price movements, whereas CPI captures retail inflation faced by households. Consequently, aggregate data suggests a low-inflation, high-growth environment even as many consumers continue to face elevated inflation. Though potential moderation is expected as more data emerges, current GDP figures underscore the Indian economy’s resilience, demonstrating robust growth despite persistent global uncertainties and external challenges. The data release triggered a significant statistical debate after former Finance Secretary Subhash Garg claimed that real GDP growth was 2.6 percent, rather than the officially reported 7.8 percent. The controversy arose following the GDP base year revision from 2011-12 to 2022-23. Under the old series, Q1 FY26 nominal GDP was estimated at Rs. 86.05 lakh crore, while the revised methodology placed the same quarter at Rs. 80.00 lakh crore. Garg’s estimate was based on comparing the new-series Q1 FY27 GDP (Rs. 88.27 lakh crore) with the old-series Q1 FY26 figure (Rs. 86.05 lakh crore), resulting in a misleading growth rate of 2.6 percent. Economists criticized the approach for comparing two different statistical series, and Garg’s subsequent revisions only reinforced concerns about the methodological validity of the original claim. From a macroeconomic and statistical perspective, the criticism rests on a fundamental methodological error. The old 2011-12 base series and the new 2022-23 base series are built on different datasets, coverage, weightings, and estimation methods, making direct comparisons invalid. The downward revision in the economy’s size for Q1 FY26 primarily reflected improved measurement of the informal sector through newer surveys, which revealed deeper pandemic-era disruptions than previously captured. Another important reform was the adoption of double deflation in manufacturing, a globally accepted methodology that separately adjusts input and output prices for inflation. It largely reflected the impact of higher input costs and the more accurate measurement of real value addition under the new methodology. The debate quickly became a politically charged issue. Opposition parties argued that the official estimates overstated economic performance, pointing to the disconnect between headline growth figures and persistent concerns over rural distress and subdued income growth. This episode underscores the dangers of politicizing complex statistical reforms such as GDP rebasing and double deflation. When methodological changes are interpreted through political narratives rather than objective analysis, attention shifts from empirical evaluation, weakening confidence in official data and encouraging partisan assessments of economic performance.
The rapid spread of the GDP controversy exposed a key weakness in the government’s economic communication framework. A technically flawed interpretation gained wide acceptance, reflecting the growing trust deficit around official statistics. Although the GDP estimates were based on established methodology, base-year changes and increasingly complex national accounting practices have made economic data harder for the public to understand. The problem is compounded by delayed and highly technical official responses, which fail to counter misinformation quickly. Consequently, political narratives and speculation fill information gaps, eroding trust in official statistics and weakening confidence in economic institutions. Stronger Foundations To strengthen confidence in official statistics, India must prioritize greater transparency and stronger statistical foundations. A key challenge is the continued delay of the decennial Census, originally due in 2021. As the benchmark for major surveys such as HCES, PLFS, and ASUSE, the absence of updated Census data forces reliance on outdated population estimates, increasing statistical uncertainty. Updating the Census, expanding access to anonymized datasets, and clearly communicating methodological changes would improve data quality, enable independent validation, and help rebuild public trust in economic statistics. Despite domestic debate over GDP rebasing, international institutions have broadly endorsed India’s statistical reforms. The IMF and World Bank have supported the shift to the 2022-23 base year and the adoption of PPI-based double deflation, noting that these changes align India’s National Accounts framework with global best practices and improve the accuracy of GDP measurement. Nevertheless, sustaining confidence in official statistics requires greater transparency and more effective communication of methodological changes. As India pursues deregulation and structural reforms, reliance on outdated population data could reduce policy effectiveness. While India’s emergence as a major driver of global growth remains firmly intact, maintaining the credibility, transparency, and reliability of its statistical architecture is essential for preserving public trust and sustaining investor confidence. (The writer is a Chartered Accountant with a leading Mumbai-based company. Views personal.)

India waits to lasso diamantaire Mehul Choksi

Quaid Najmi
Apr 14, 2025
5 min read

Mumbai: India rubbed its hands gleefully as the Belgium Police honoured its request to arrest the absconder diamantaire Mehul Chinubhai Choksi – more than seven years after he, along with his nephew Nirav Deepak Modi - allegedly duped the Punjab National Bank of nearly Rs. 13,800-crores.

 

The scam involving the ‘Mehul Mama-Nirav Bhanja’ erupted in Jan 2018, after the PNB lodged a complaint with the Central Bureau of Investigation (CBI).

 

By then the kin, along with many of their family members, winked and slipped out of the country, leaving a rattled India rubbing its palms in disappointment.

 

A political-cum-financial storm raged, embarrassing the Bharatiya Janata Party government of Prime Minister Narendra Modi a year before the Lok Sabha elections.

 

Multiple agencies launched a multi-pronged probe into what became the biggest banking scam in the past quarter century – and almost four times bigger than the stock market-cum-banking fraud the late Big Bull Harshad Mehta had inflicted on the Indian economy 33 years ago (in April 1992) – when it was just opening up.

 

In Belgium

According to official reports, Choksi was living with his Belgium citizen-wife Preeti in Antwerp, a global diamond hub, presumably for the past 18 months on a ‘residency permit’ acquired through questionable means, for medical reasons.

 

Earlier, he shot to the headers (June 2021) while being taken in a wheelchair to a court by the Dominican Republic's Police on charges of sneaking into the small country in the Caribbean Sea, North America.

 

Interestingly, as the Antigua & Barbuda government initiated the process to cancel his citizenship acquired through an investor visa, Choksi had suddenly gone ‘missing’ till he surfaced in the Dominican Republic.

 

The April 2025 action by Belgium followed a request by India’s CBI and the financial frauds specialist Enforcement Directorate (ED) to nab Choksi as the InterPol had revoked his Red Corner Notice in 2023.

 

Mama and Bhanja

‘Mama’ Choksi is the founder-owner of Gitanjali Group while ‘bhanja’ Nirav’s Firestar plus other companies – and the duo, with some PNB officials hand-in-glove – conspired to make a ‘mamu’ of not only PNB, but other banks, as it subsequently tumbled out.

 

After making a quiet exit, Choksi was detected living in the verdant Antigua & Barbuda Isles (West Indies), then attempted entry to the Dominican Republic, was sent back to Antigua & Barbuda and then went to Belgium where he was nabbed on Sunday.

 

Similarly, Modi was found sauntering on the streets of London and nabbed in March 2019. He remains in jail there since India's extradition is still pending.

 

However, India is keeping its fingers crossed that it may finally lay hands on Choksi, bring him to India and face trial in the PNB scam, though it may take time.

 

Born in Mumbai (1959) and educated in Gujarat, Choksi, 66, and wife Preeti have three children.

 

The Rs. 13,800-crore PNB scam

In the modus operandi revealed after India’s second-largest PSU bank PNB admitted it was scammed, Choksi and Modi used fraudulent Letters of Undertaking (LoU) to get overseas credits or loans from Indian banks.

 

The PNB first informed the Reserve Bank of India (RBI) of the fraud and then lodged a criminal complaint with the CBI in Jan. 2018, plus another CBI complaint in Feb, that led to a FIR against Modi and Choksi and their companies.

 

The ED entered the scene to probe the allegations of money-laundering through the LoUs – which they allegedly misused to avail short-term business finances from foreign branches of Indian banks.

 

The probe said that the duo were availing the LoUs from the PNB’s Brady House Branch from March 2011, and over the next six-seven years, managed to get a whopping 1,200-plus LoUs like a breeze with the help of some friendly bankers within.

 

Post-scam, the gold-diamond companies Gitanjali Group and Firestone Group with multiple operations in India and abroad have largely wound up, while some personal assets of the mama-bhanja have been auctioned to recover a part of the dues.

 

ED's plea to declare Choksi fugitive stuck for seven years

Even as absconding diamantaire Mehul Choksi, a key accused in the Punjab National Bank loan fraud case, has been arrested in Belgium, the ED's plea to declare him a fugitive economic offender has been pending before a court in Mumbai for nearly seven years.


Choksi, 65, and his nephew diamantaire Nirav Modi are the prime accused in the Rs 13,000 crore PNB bank loan fraud case. Choksi was arrested in Belgium following an extradition request by Indian probe agencies, official sources said on Monday.


The Enforcement Directorate had filed the application in July 2018, seeking to declare Choksi an FEO and confiscate his assets under provisions of the Fugitive Economic Offenders Act.


However, the matter has witnessed repeated delays owing to a barrage of applications filed by the accused in the PMLA court and the Bombay High Court alleging procedural lapses in the Enforcement Directorate's plea.


"The court is kept busy with frivolous applications, and hearing on our application to declare him (Choksi) an FEO has been adjourned for the past seven years,” an ED officer had said after the hearing was once again deferred this February.


"The court should have continued the hearing and taken a decision on the future course of action once the application was moved," the officer had said.

He had urged the court to take note of the repeated filing of similar applications and to not entertain them.


Choksi's lawyer had informed the court that the accused was undergoing treatment for suspected cancer in Belgium and intended to file an application in connection with his health.


Under the FEO Act, an individual can be declared a Fugitive Economic Offender if a warrant has been issued against him for an offence involving Rs 100 crore or more and he has left India while refusing to return. Once declared an FEO, the person's property can be confiscated by the investigating agency.


Choksi had challenged the ED's application in the Bombay High Court, alleging that the agency "had not followed proper procedure before filing the application and, hence, it stands vitiated".


However, in September 2023, the High Court dismissed his plea, ruling that the ED had adhered to the prescribed format under the FEO Act. It also vacated a stay on the special court's proceedings.


Despite this, the hearing on declaring Choksi FEO could not commence, with Choksi continuing to file applications before the special court through his lawyers.


While most of these pleas have been dismissed, a few remain pending. His latest attempt to stall proceedings through a plea to recall the notice issued on the ED's FEO application was rejected in December 2023.


According to ED officials, Choksi left India under suspicious circumstances in early January 2018.


Shifting stance

Choksi's counsel has argued that the ED kept shifting its stance on the material grounds for declaring him an FEO and that the suspension of his Indian passport made it impossible for him to return for investigation.

The court, however, rejected this argument, stating that the notice was issued based on accurate information and not based on "wrong facts or mistaken assumptions".


ED claimed the accused left the country under suspicious circumstances in the first week of January 2018.


Nirav Modi has already been declared as an FEO by the special court. He has been lodged in jail in London since 2019.

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