Raghuram Rajan Questions Whether India’s High GDP Growth Reflects Ground Reality

Former Reserve Bank of India Governor Raghuram Rajan has questioned whether India’s strong GDP growth numbers fully capture the ground realities of the economy.

Speaking to India Today TV, he pointed to weak corporate investment and declining foreign capital inflows as indicators that seem inconsistent with official reports of economic expansion above 7%.

“I don’t understand it. If the economy was growing at this rate, you would definitely expect investment to be higher. Something is off,” Rajan said, highlighting a persistent disconnect between headline GDP growth and business behavior.

India’s economy expanded 7.7% in fiscal year 2025-26, up from 7.1% a year earlier. Growth in the January-March quarter stood at 7.8%, slightly below the preceding quarter’s 8%.

These figures follow a revised GDP series using 2022-23 as the base year, incorporating an updated inflation basket and back-series data to better reflect consumption patterns and digital economy growth post-pandemic.

Despite the strong numbers, Rajan said corporate investment remains a major concern.

“Why corporate investment hasn’t taken off was a puzzle 10 years ago. It is still a puzzle today,” he noted.

He suggested that actual economic growth may be weaker than the official numbers indicate, given limited business expansion and investment.

Rajan also flagged declining foreign direct investment and softer portfolio inflows as evidence of caution among domestic and overseas investors.

“FDI is down significantly. Portfolio investors have been selling and getting out. That’s consistent with a lack of confidence in the Indian economy,” he said.

On policy direction, Rajan criticized the absence of a clearly defined economic roadmap beyond India’s goal to become a developed country by 2047.

He questioned the effectiveness of measures to boost manufacturing and employment, pointing out that India has yet to establish itself as a major manufacturing hub despite years of policy focus.

Overall, Rajan’s remarks emphasize a gap between official growth metrics and investment-driven indicators, raising questions about the sustainability and quality of India’s reported economic expansion.