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IMF Article IV assessment

11 Dec 2025 GS 3 Economy
IMF Article IV assessment Click to view full image

Context

  • The IMF assigned India a ‘C’ grade for national accounts statistics, the second-lowest grade.

  • A ‘C’ implies significant issues in data quality that hamper effective economic surveillance.

  • National accounts include GDP, GVA, sectoral output, investment, consumption, and export performance. Any distortion affects policymaking, fiscal planning, and monetary calibration.

  • This rating places India in the same group as China, which has long been criticised for opacity in economic statistics.

Components of national accounts

  1. Macro aggregates

    • GDP (Gross Domestic Product)

    • GVA (Gross Value Added)

    • National income, disposable income, saving, and capital formation

  2. Sectoral metrics

    • Output, value added, employment estimates for sectors such as

      • Agriculture

      • Manufacturing

      • Construction

      • Trade and services

      • Financial sector

    • These help understand which sectors drive growth or lag behind.

  3. Investment measures

    • Gross fixed capital formation

    • Changes in inventories

    • Public vs private investment

    • Sector-wise investment trends
      These metrics show how much the economy is building capacity for future growth.

  4. Consumption (consumer spending)

    • Private final consumption expenditure

    • Government consumption
      These reflect domestic demand, a key driver in India’s economy.

  5. External sector indicators

    • Exports of goods and services

    • Imports of goods and services

    • Net exports contribution to GDP
      Currently important because exports influence:

    • Manufacturing revival

    • Employment

    • Balance of payments stability

Persistent issue: outdated base year (2011–12)

  • The base year for national accounts, IIP, and CPI remains 2011–12.

  • An outdated base year fails to reflect structural changes, digitalisation, consumption shifts, and new sectors.

  • IMF explicitly stated that India’s CPI received ‘B’ instead of ‘A’ because its base year is old.

  • CPI’s heavy food weightage + outdated base = poor capture of actual inflation trends, which affects RBI’s monetary policy decisions.

Impact on policymaking

  • Poor data → misleading picture of investment, consumption, exports, and sectoral performance.

  • Incorrect inflation measurement → suboptimal monetary policy stance.

  • National accounts inaccuracies → hindered targeted welfare design, productivity analysis, fiscal allocations.

Informal sector challenge

  • The informal sector is difficult to capture due to unregistered, cash-based operations.

  • Yet it forms a major share of employment and output.

  • Underestimation distorts:

    • actual GDP size and growth

    • understanding of household welfare

    • labour market realities

  • Thus, improving informal sector measurement is essential for credible macroeconomic statistics.

Ongoing reforms (due in early 2026)

  • Government is updating:

    • national accounts base year

    • CPI methodology + base

    • IIP base

  • Proposed changes include:

    • integration of GST data for improved coverage of enterprises

    • refined corporate data from MCA-21

  • These are expected to improve reliability, reduce revision cycles, and address long-standing gaps.

IMF’s grading scale for data quality

The IMF evaluates a country’s statistics on a four-tier scale:

  • AData fully adequate for IMF surveillance.

  • BData broadly adequate with some shortcomings but generally usable.

  • CData have shortcomings that somewhat hamper surveillance.

  • DData have serious shortcomings that significantly hamper surveillance.
    This scale applies to statistical categories like national accounts (GDP, GVA), prices (CPI), government finance stats, external sector stats, and monetary/financial data.

IMF Category

Grade

Implication

National accounts (GDP, GVA)

C

Some shortcomings that somewhat hamper surveillance

Prices (CPI), government finance, external & monetary stats

B

Broadly adequate despite limitations

Overall statistical system

B

Generally adequate with some room for improvement

IMF Article IV assessment

What is Article IV?

  • Article IV refers to Article IV of the IMF’s Articles of Agreement, which legally mandates the IMF to conduct annual surveillance of the economic and financial policies of each member country.

  • Every IMF member, including India, must undergo this review once a year.

Prelims Practice MCQs

Q. National accounts in India include which of the following components?

  1. GDP and GVA

  2. Sector-wise output and value-added estimates

  3. Measures of investment and consumer spending

  4. External sector performance such as exports

Select the correct answer:
A. 1 and 2 only
B. 1, 2 and 3 only
C. 2, 3 and 4 only
D. 1, 2, 3 and 4

Correct answer: D
Explanation: National accounts comprise macro aggregates (GDP, GVA), sectoral metrics, investment/consumption data, and external sector indicators such as exports and imports.

Q. Which of the following are included under “measures of investment” in national accounts?

  1. Gross fixed capital formation

  2. Changes in inventories

  3. Household financial savings

  4. Net foreign assets

Select the correct answer:
A. 1 and 2 only
B. 1, 2 and 3 only
C. 1 and 4 only
D. 1, 2 and 4 only

Correct answer: A
Explanation: Investment in national accounts mainly includes gross fixed capital formation and changes in inventories. Household financial savings and net foreign assets are separate components in macroeconomic accounts.



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