India reported the worst quarterly contraction on record, with 23.9 per cent fall in Gross Domestic Product (GDP) for the April-June quarter (Q1), as per provisional estimates released by the Ministry of Statistics and Programme Implementation (MoSPI) on Monday (31 August, 2020).
The country has officially entered a phase of recession. According to the media reports, the contraction is also the worst among G20 nations. Prior to this, the UK had reported the biggest slump in GDP among the world's top 20 economies with a 21.7% fall in the June quarter, its deepest contraction on record.
In light of this, viral social media posts claim that the US, Canadian and the Japanese economy have contracted more than the Indian economy.
S Gurumurthy, a political economy commentator and a director with the Reserve Bank of India tweeted that the United States witnessed a drop of 33 percent, Japan as 27.8 percent. However, he later issued a correction.
India Today, aired an infographic that showed US' economy falling by 32.9 percent and India by 23.9 percent, in its broadcast.
Postcard News, known for spreading fake information also shared an infographic that claimed that the economy of US contracted by 32.9 percent.
The Logical Indian received a request to verify the claims.
US, Canadian and the Japanese economy have contracted more than the Indian economy.
The claim is false. The confusion seems to be because of different ways of calculation of GDP growth/contraction in US and India. In US, the comparison is done on quarter-on-quarter basis which is then annualised, while in India it is done on a year-on-year basis.
What Is Annualisation?
This is a technique in statistics of taking a figure covering a period of less than one year and extrapolating it to cover a full one year period. This is usually done for ease of comparison of figures.
The US Bureau of Economic Analysis (BEA), "publishes percent changes in most quarterly estimates at annual rates". Further, a quarterly percent change is added "at an annual rate shows what the percent change would be if the quarterly rate continued for four quarters. It is computed by compounding the quarterly rate for four quarters."
The formula used for this can be accessed here.
According to BEA, the US economy contracted by 9.1 percent in the April-June quarter in comparison to January-March quarter.
Now, if the same figure is annualised, as explained above, then as per the BEA report, the gross domestic product of the US contracted at an annualised rate of 31.7 percent in the same quarter of 2020.
How GDP Is Calculated In India?
In India, the comparison is done on a year-on-year basis. Therefore, when it was said that India's GDP dropped by 23.9 percent in the April-June quarter in 2020, it indicated that this contraction is in comparison to April-June 2019.
In India, a quarter-on-quarter comparison is not done, unlike the US. Therefore, if the GDP of India has to be compared with the US numbers, then the 23.9 percent figure must be compared with 9.1 percent not to the annualised percentage.
Gita Gopinath, Chief Economist of the Indian Monetary Fund (IMF) tweeted non-annualised quarter-on-quarter growth numbers for the economies. This data, showed that India witnessed a drop of 25.6 percent.
An article by the Observer Research Foundation (ORF), Gautam Chikermane, the organisation's Vice President, while comparing the world figures, compares India's 23.9 percent drop with US' 9.5 percent contraction. It is noteworthy to mention that the report refers to the Organisation for Economic Co-operation and Development data, which is why the figure is 9.5 and not 9.1.
Therefore, viral posts mistakenly compared the annual rate of shrinking of US GDP with the year-on-year drop in GDP (India).
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