The Central Statistics Office (CSO) has revised GDP growth to 3.5 per cent from earlier estimates of 5.9 per cent in the fourth quarter of 2008-09. On the flip side, it also showed the fourth quarter growth estimate for 2009-10 was better than first thought—11.2 per cent rather than 9.4 per cent.
The news, first published in a local daily, came as the country braced for the release on Friday of GDP data for this fiscal year's June quarter, which is likely to show a continued economic slowdown.
Questions over the reliability of Indian data are not new. Economists have previously challenged the accuracy of other indicators such as industrial production and exports. Faulty data makes it potentially trickier for policymakers to take decisions on matters like interest rates.
The trade ministry admitted in December it had accidentally inflated India's export figures by more than $9 billion due to a glitch in the computer system that collates the data.
Government statisticians defended the change in the GDP numbers as routine revision.
Globally, economic data is revised on a regular basis. India, for example, revises inflation data every month. But the sharp revision—and the time gap from when the data was first collected—raised eyebrows.
"In GDP data, which is a very, very important data set for the central bank and the government, such sharp revisions are something which is a cause of worry," said RBS economist Gaurav Kapur in Mumbai.
"Quality of statistics is something which has been a concern for a while, and these numbers point to that again," he said. "At least for the inflation side, for instance, we know about revisions on a monthly basis, but in GDP numbers, having such sharp revisions, and that too going back three years, is something at least I have never seen."
The downward revision means the economy is growing at its slowest rate in three years, not nine years as previously thought. Economists expect Friday's data to show the economy grew at 5.3 percent in the June quarter, mirroring its disappointing performance in the previous quarter.
"These kind of historical revisions complicate the job for policymakers as it gets difficult to get an accurate picture of the risks in the economy and weakens ability to anticipate impact of shocks in the economy," said Rahul Bajoria, regional economist at Barclays Capital in Singapore.
India, which has basked in two decades of rapid economic development since landmark economic reforms in 1991, has seen growth slow sharply amid a prolonged political logjam that has stalled decision-making.
Government officials said the revision reflected changes in how India's industrial production was measured. The government recently changed the base year to which data is compared, something it has typically done every 10 years. The government now plans to revise the base year every five years.
The new index covers 682 items and includes products such as clothing, jewellery, processed food and new industrial products that were not covered in the previous index.
"The aim was to give a more true picture of the economy," T.C.A Anant, India's chief statistician, told Reuters.