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India’s growth rate overestimated by 2.5%, says study by former chief economic advisor

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[vc_row][vc_column][vc_column_text]A new study by none less than India’s former Chief Economic Advisor Arvind Subramanian may have punctured India’s much vaunted status as world’s fastest growing economy.

Titled India’s GDP Mis-estimation: Likelihood, Magnitudes, Mechanisms, and Implications, Subramanian’s working paper for the Center for International Development at Harvard University, US, is critical of Indian statisticians and the way India’s GDP growth has been estimated after 2011-12.

It says the expansion was overestimated by as much as 2.5 per cent between 2011 and 2017, that is, during UPA-2 and Prime Minister Narendra Modi’s first term. Rather than growing at about 7% a year in that period, growth was about 4.5%.However, it doesn’t break this down by year.

But this means India’s claim of being the world’s fastest-growing major economy may not have been true.

“The Indian policy automobile has been navigated with a faulty, possibly broken, speedometer,” says Arvind Subramanian, who was Chief Economic Adviser for Prime Minister Narendra Modi’s government between 2014 and 2018. He asserts that the overestimation is not political.

“My new research suggests that post-global financial crisis, the heady narrative of a guns-blazing India – that statisticians led us to believe – may have to cede to a more realistic one of an economy growing solidly but not spectacularly,” Subramanian wrote in The Indian Express, attributing the overestimation to “methodological changes”.

The previous Congress-led government changed the methodology in calculating gross domestic product in 2012. One of the key adjustments was a shift to financial accounts-based data compiled by the Ministry of Corporate Affairs, from volume-based data previously. This made GDP estimates more sensitive to price changes, in a period of lower oil prices, according to the research paper. Rather than deflate input values by input prices, the new methodology deflated these values by output prices, which could have overstated manufacturing growth.

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Subramanian carried out an experiment, one that many other economists have also been doing for India: he made an index of other data sources that could reflect what is happening in the actual economy, such as electricity consumption, two-wheeler sales, index of industrial production and so on. None of these were figures that came from the Central Statistical Office, which compiles the GDP statistics.

Subramanian’s index found that these indicators tend to move closely in step with the GDP number between 2001-’02 and 2011-’12. But from 2011-’12 to 2016-’17, there are huge gaps between them. The paper uses various methods, including indicators from India and other countries, to test mis-estimation in growth, all of which confirm the belief that GDP growth was over-estimated.

Subramanian insists that the paper is only the start, and much more research needs to be done. But, in looking at the data, he does offer one explanation for why the new methodology of calculating GDP might have thrown out bad data.

Based on the experiment, Subramanian finds that before 2011, the official estimates of manufacturing move along with other indicators, like the index of industrial production. But under the new methodology, this connection is completely broken.

The reasons for this are more complicated but, to put it simply, the paper suggests that the new GDP methodology does not properly take into account how changes in global oil prices (and possibly other “input” commodities) might affect actual figures. Ultimately, this means that the new GDP methodology has a completely flawed understanding of manufacturing numbers.

But this only explains about a 1 percentage point of the overall 2.5 percentage point over-estimation. More research is needed to understand what else is going wrong.

Subramanian points out that this isn’t just a matter of denting India’s reputation. Bad data would also affect policymaking For example, the Reserve Bank of India might have cut interest rates much earlier if it was known that GDP growth was that much lower, and the government might have moved much quicker to resolve the banking crisis or agricultural concerns.

According to the former top economic adviser, the popular narrative has been one of “jobless growth”, hinting at a disconnect between fundamental dynamism and key outcomes. “In reality,weak job growth and acute financial sector stress may have simply stemmed from modest GDP growth. Going forward, there must be reform urgency stemming from the new knowledge that growth has been tepid, not torrid; And from recognising that growth of 4.5 per cent will make the government’s laudable inclusion agenda difficult to sustain fiscally.”

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Dr Subramanian explains that when he was working with the government, he had grappled with conflicting data and “raised doubts frequently” with the government. “But the time and space afforded by being outside government were necessary to undertake months of very detailed research, including subjecting it to careful scrutiny and cross-checking by numerous colleagues, to generate robust evidence,” he says.

The paper has three recommendations for what India needs to do:

India must “restore growth as a key policy objective”.

India must “restore the reputational damage suffered to data generation,” not only by giving statutory independence to the National Statistical Commission (which currently has no independent members) but also by hiring people with “stellar technical and personal reputations”.

The entire methodology and implementation for GDP estimation must be revisited by an independent task force, comprising both national and international experts, with impeccable technical credentials and demonstrable stature.

On the other hand, the politically appointed NITI Aayog was seen as interfering with India’s statistical operations. Recently, word has emerged that the BJP is thinking about a new law to merge the main bodies that work on statistics, potentially undermining their independence.

 

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Google announces country-specific domain names for its search page

This transition to a centralised domain may help Google optimise AI performance in delivering relevant search results.

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In a significant move aimed at unifying its search experience, Google has announced plans to phase out country-level domain names, such as google.ng for Nigeria and google.com.br for Brazil. Instead, the tech giant will redirect users globally to a standardised domain, google.com. This decision aligns with Google’s ongoing effort to enhance search functionality and accessibility, building on the improvement in local search capabilities introduced in 2017.

In a recent blog post, Google explained that it will begin redirecting traffic from these country code top-level domains (ccTLDs) to google.com. This transition will be implemented gradually over the coming months. Users may be prompted to adjust their search preferences during this process, as the company works to streamline the user experience.

“Historically, our approach to delivering localised search results relied on ccTLDs,” Google stated. “However, our capability to offer localised experiences has evolved significantly, making these distinctions unnecessary.” The company reassured users that the core functionality of its search platform will remain unchanged and that compliance with various national regulations will continue.

This initiative reflects Google’s commitment to improving how search results are tailored to individual users without the need for separate country-specific domains. While the official rationale emphasises enhancing global user experience, some industry experts speculate that the change may also be motivated by a desire to better integrate artificial intelligence (AI) into search results, potentially leading to reduced operational costs.

Google employs AI Overviews, a tool designed to aggregate information from a broad range of online sources to provide concise responses to user inquiries. This transition to a centralised domain may help Google optimise AI performance in delivering relevant search results.

Overall, as Google implements this shift, users can expect a more unified search experience. While changes in browser addresses may occur, Google emphasises that the way search operates and its compliance with national laws will remain consistent. This strategic shift signifies Google’s ongoing efforts to adapt to the evolving digital landscape and user needs globally.

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In HUL vs HCL defamation case, Delhi HC orders take down of Lakme sunscreen ad disparaging Derma Co

Honasa, in its plea to the Delhi High Court, argued that HUL’s claims are misleading and disparage competitors, damaging their reputation. In retaliation, HUL filed a countersuit against Honasa in the Bombay High Court, escalating the corporate feud.

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A legal showdown between Honasa Consumer Ltd. (HCL), the parent company of Mamaearth, and Hindustan Unilever Ltd. (HUL), which owns Lakmé, reached the Delhi High Court this week, with both FMCG giants filing defamation lawsuits against each other. On Thursday, the court ordered HUL to pull its current Lakmé sunscreen advertisements, prompting the company to agree to revise its campaign by removing references to “online bestseller” and altering the depicted packaging colours.

The dispute centres on Lakmé’s recent “SPF Lie Detector Test” campaign, which HCL alleges unfairly targets its Derma Co. sunscreen by questioning the efficacy of rival products.

In the ads, HUL claims that some “online bestseller” sunscreens, marketed as SPF 50, provide protection closer to SPF 20, based on in-vivo testing data from the past decade. While no brands are explicitly named, visuals juxtaposing yellow bottles—resembling Derma Co.’s packaging—against Lakmé’s sparked Honasa’s ire.

Honasa, in its plea to the Delhi High Court, argued that HUL’s claims are misleading and disparage competitors, damaging their reputation. In retaliation, HUL filed a countersuit against Honasa in the Bombay High Court, escalating the corporate feud.

The controversy erupted when Ghazal Alagh, co-founder of Honasa, took to LinkedIn to criticise the FMCG sector’s lack of competitive drive, suggesting that legacy brands like HUL have grown complacent. Her comments were seen as a direct jab at Lakmé’s campaign, which challenges the SPF claims of newer sunscreen brands dominating online markets. “The industry needs fresh competition to shake things up,” Alagh wrote, igniting a public spat.

Lakmé’s campaign asserts that some top-selling sunscreens falsely claim in vivo testing—a method involving live organisms like humans or animals—while delivering subpar protection. In a social media statement, Lakmé doubled down, saying, “Certain online bestsellers advertise SPF 50, but their in-market samples test closer to SPF 20.”

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Sensex and Nifty jump nearly 2% as US suspends additional 26% tariffs on India until July 9

Foreign Institutional Investors (FIIs) had sold equities worth ₹4,358.02 crore on Wednesday, signaling caution, but Friday’s momentum suggested a shift in sentiment.

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Indian stock markets staged a robust rally on Friday, with the BSE Sensex skyrocketing 1,310.11 points, a 1.77% gain, to close at 75,157.26. The NSE Nifty followed suit, climbing 429.40 points or 1.92% to settle at 22,828.55, breaching the 22,900 mark during intra-day trading. The surge came on the heels of a White House announcement suspending additional tariffs on India for 90 days until July 9, offering a reprieve amid global trade tensions.

The US decision, detailed in recent executive orders, pauses levies that President Donald Trump had imposed on April 2, targeting India and roughly 60 other nations. Those duties threatened Indian exports ranging from steel to shrimp, raising concerns about competitiveness in the US, the world’s largest economy. The temporary suspension sparked optimism among Indian investors, propelling gains across major sectors.

Leading the charge among Sensex constituents were heavyweights like Tata Steel, Reliance Industries, Power Grid, NTPC, Kotak Mahindra Bank, and Adani Ports. However, not all stocks joined the rally—Asian Paints and Tata Consultancy Services lagged behind, unable to capitalize on the upbeat mood.

Vinod Nair, Head of Research at Geojit Investments Limited, attributed the market’s buoyancy to the tariff relief. “The unexpected pause on US tariffs provided a much-needed breather amid global uncertainties,” Nair noted. He added that while a major IT firm’s recent results fell short of expectations, its robust order book signaled potential growth in the latter half of FY26.

The Indian markets’ performance stood in stark contrast to global trends, where fears of a US-China tariff war cast a shadow. On Friday, China escalated its trade spat with the US, hiking tariffs on American imports to 125% in response to Washington’s 145% levies on Chinese goods.

Asian markets reflected the unease, with Tokyo’s Nikkei 225 plunging nearly 3% and South Korea’s Kospi slipping, though Shanghai’s SSE Composite and Hong Kong’s Hang Seng bucked the trend with gains. European markets traded lower, while US indices had closed sharply down on Thursday, with the Nasdaq tumbling 4.31%, the S&P 500 falling 3.46%, and the Dow Jones shedding 2.50%.

Back home, the rally followed a lackluster Wednesday, when the Sensex dipped 379.93 points to 73,847.15 and the Nifty fell 136.70 points to 22,399.15. Thursday’s market holiday for Shri Mahavir Jayanti gave investors a pause before Friday’s surge. Foreign Institutional Investors (FIIs) had sold equities worth ₹4,358.02 crore on Wednesday, signaling caution, but Friday’s momentum suggested a shift in sentiment.

Elsewhere, global oil prices edged up, with Brent crude rising 0.32% to $63.53 a barrel, reflecting ongoing volatility in commodity markets.

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