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Monetary policy: RBI dumps GVA model, switches back to GDP to measure economy

Mumbai: The Reserve Bank of India (RBI) on Thursday switched back to the gross domestic product (GDP)-based measure to offer its growth estimates from the gross value added (GVA) methodology, citing global best practices.

Government had started analysing growth estimates using GVA methodology from January 2015 and had also changed the base year to 2012 from January.

While GVA gives a picture of the state of economic activity from the producers' side or supply side, the GDP model gives the picture from the consumers' side or demand perspective.

 Monetary policy: RBI dumps GVA model, switches back to GDP to measure economy

Monetary policy: RBI dumps GVA model, switches back to GDP to measure economy. Reuters image.

Deputy governor Viral Acharya on Thursday said the switch to GDP is mainly to conform to international standards.

"Globally, the performance of most economies is gauged in terms of gross domestic product (GDP). This is also the approach followed by multilateral institutions, international analysts and investors, and primarily they all stick to this norms because it facilitates easy cross-country comparisons," Acharya told reporters at the customary post-policy presser.

Even the Central Statistical Office (CSO) has started using GDP as the main measure of economic activities since 15 January this year, he added.

"So, even though there are good economic reasons to employ GVA as the supply side measure of economic activity, we have decided to switch to GDP-based model," Acharya said.

In the first bi-monthly policy of the new fiscal year 2018-19 wherein it left the key rates unchanged at 6 percent citing rising inflation worries in the first half, RBI said GDP is projected to strengthen from 6.6 percent in FY18 to 7.4 percent in FY19-- with the economy clipping at 7.3-7.4 percent in H1 and at 7.3-7.6 percent in H2 with risks evenly balanced.

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Updated Date: Apr 05, 2018 18:34:14 IST