IMF vs. CSO GDP Estimation
The way in which the GDP is calculated by CSO and IMF differs on two counts. CSO calculates growth for the fiscal year, not the calendar year. More importantly, it reports its GDP “at factor cost”. That means it adds up all the income earned (by labor, capital and other “factors of production”) in the course of producing the country’s goods and services. Whereas IMF looks at the calendar year while formulating estimates, while the government looks at the fiscal year, so there is a one quarter difference in measurement. IMF estimate is based on GDP at market prices. The difference between the two methods of calculating GDP is net taxes (i.e. taxes-subsidies). In order to arrive at a judgment on the GDP growth of the country one needs to compare the IMF and the official estimates and infer the trend. Though the numbers may differ based on the methodology used the trend of the economic trajectory will be evident. Hence one should look at the trend of the GDP growth and arrive at a realistic understanding of the GDP growth rate. For a company like Tata Motors which operates in the Commercial vehicle industry space the GDP estimates released by the CSO will be taken for business planning in the domestic business. Macro Aggregates for Business Planning
GDP growth is one of the major indicators for understanding the economic activity of the country but is not the only indicator.GDP has certain shortcomings like data is not very timely - it is only released quarterly. Revisions can change historical figures measurably (the difference between 6% and 6.5% GDP growth can impact the monetary policy. Also GDP does not take into account non market transactions and GDP falls in case if product quality improves. Also GDP does not take into account the environmental cost of growth. From a business plan perspective a company should take into account the following macroeconomic indicators. Measure/Index
Inflation of 6% to 7% is...
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