On India and The IMF’s Low Grading

Recently, the International Monetary Fund’s (IMF) has given India’s national accounts statistics a ‘C’ grade, the second-lowest rating, signalling deficiencies that hinder effective economic surveillance.

• This places India in the same category as China, an unenviable position for a country with a robust statistical system.

Role of National Account Statistics (NAS)

• “Dashboard” of the Economy: NAS tracks the economy’s vital signs- GDP (production), GVA (sectoral value addition), Investment levels, Consumption, & Exports.
  • If the NAS is inaccurate, it can lead to dangerous errors in policy-making.

Systemic Weaknesses in India’s National Accounts and Inflation Metrics

• Scope of National Accounts: National accounts cover GDP, GVA, investment, consumption, and exports; weaknesses in these metrics impair targeted policymaking.
• Outdated Base Year: The 2011–12 base year has been repeatedly flagged as the core problem, affecting GDP, IIP, and CPI calculations.
  • Economists recommend updating the base year every five years, but India’s 10–12-year gap fails to reflect structural shifts—like reduced food spending and higher expenditure on services—making the current “shopping basket” outdated and inaccurate.
• CPI Limitations: India’s CPI received a ‘B’ grade due to the outdated base year and heavy weight of food, leading to inaccurate inflation measurement and affecting RBI’s monetary policy.
• Challenges in Updating Methodology: India has long struggled to update base years and improve statistical methodologies.
• Underestimation of Informal Sector: India’s large informal sector, being mostly unregistered and cash-based, is under-measured, which distorts GDP estimates and can overstate economic health by masking the real hardships of the majority.
• Impact on RBI: An outdated base year distorts price movements, causing the Reserve Bank of India (RBI) to misjudge inflation and set Repo Rates too low, risking excess money supply and runaway inflation.

Government Measures To Improve The National Accounts

• Base Year and Methodology Update: The government plans to release updated base years and methodologies for national accounts, CPI, and IIP in early 2026.
• Inclusion of GST Data: Incorporating GST data in the new GDP series is expected to enhance accuracy and sectoral coverage.
• Importance of Timely Updates: The IMF’s rating underscores that delays in data revision can harm economic credibility and policymaking.

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Conclusion

The IMF’s ‘C’ grade highlights the urgent need to modernise India’s statistical institutions, as accurate data is essential for effective governance.