For the revised GDP estimates issued last week question popular descriptions of India’s growth slowdown, challenge estimates of a lowered potential output and possibly shed some light on the inflation-growth disconnect in 2012. The improved data has been computed from the dependable Annual Survey of Industries (ASI) rather than the notorious Index of Industrial Production (IIP); it compels us to revisit these issues and raises policy setting concerns.

The facts: India’s GDP growth for 2010-11 stands reworked to 9.3% instead of the earlier estimate of 8.4%—nearly one percentage point higher. Much of this increase comes from revised manufacturing sector growth—9.7% year-on-year, or 2.1 percentage points more. What’s more, the increase in the estimated growth for 2010-11 is itself built upon a 1.6 point increase in growth during the previous year (now 11.3% for 2009-10).

On the demand side, it was the capital stock growth that contributed 4.2 percentage points to the 10.5% real GDP growth (at market prices). Gross fixed capital formation growth is now placed at 14% year-on-year, nearly double the earlier measure of 7.5%, and a substantial jump over the 7.7% growth in 2009-10; this acceleration lifted the real gross capital formation rate to 40% in 2010-11, from 38.4% the previous year. The other demand component that has been revised is public consumption: growth in actual government expenditure was a more modest 5.9% in 2010-11 against the 8.2% recorded earlier and a big drop from the 14% growth in 2009-10.

The new facts challenge some hypotheses about the collapse of the India growth story. For one, the “policy paralysis” explanation that throttled investments and exacerbated supply constraints from 2010 weakens in the light of robust manufacturing growth and capacity creation in 2010-11. This may explain the sudden, sharp drop in growth to 6.2% in 2011-12, when scams emerged to dent business confidence, but not before.