Ever since the government released the estimates of India’s gross domestic product (GDP) for the first quarter (April-June) of the current fiscal year on August 31, claims and counterclaims have been made regarding the veracity of the data. The controversy arose after a former senior official of the government claimed that the latest numbers were dressed up to show that economic growth in the first quarter was 7.8%, but in reality, the economy may not have grown at all!
To make their point, critics alluded to two estimates of India’s GDP in the first quarter of 2025-26 the government had released—first, at the end of August 2025; and again, on August 31, 2026. While the data released in August 2025 showed that the country’s GDP during April to June of 2025 was Rs 86.1 trillion, measured in terms of the market prices prevailing then (or, in “current prices”), the revised estimates of August 31 sharply reduced this figure to Rs 80 trillion. India’s GDP in April to June 2026 was estimated at Rs 88.3 trillion in current prices, and the government used the revised estimate of Rs 80 trillion to show that the GDP growth recorded in the first quarter of this fiscal year was 10.3% in current prices. The annual inflation was projected at 2.5%, which meant that if the effects of inflation were removed, the “real” GDP growth claimed by the government in the April-June quarter was 7.8%. However, critics argued that if last year’s estimate of Rs 86.1 trillion was considered instead, the GDP growth was just 2.6% in current prices and by only 0.1% in “real” terms, i.e., by removing the effects of inflation. In other words, the Indian economy had stalled.
Methodology overhaul
But how did the size of the Indian economy reduce by an unprecedented Rs 6 trillion, or by 7%, as between the two estimates? The government argues that it resulted from a complete overhaul of the methodology and data sources for estimating the GDP since early this year. Broadly speaking, two sets of improvements were introduced for estimating the GDP. First, structural changes in the Indian economy since the last revision a decade back were factored in, and the “true contributions of growing sectors and changes in technology and productivity” were incorporated. The estimates were also based on “new and improved data sources, including enterprise surveys, administrative records, supply-use and input-output tables, and the adoption of revised concepts”.
A second set of improvements was introduced using better sets of prices for estimating India’s “real” GDP for removing the effects of inflation or, in other words, are used as “deflators”. Three substantive changes were introduced. While the earlier estimates used 2011-12 base year prices, for estimating real GDP growth, the new estimates use 2022-23 base year prices. The government points out that the 2022-23 base year captures the latest data sources and enhances the coverage and accuracy of price data. Further, the 2011-12 prices were based on the wholesale price index (WPI), and a single price deflator was inappropriately used in case of both inputs and outputs in manufacturing and agriculture. The new estimates use input and output deflators separately, technically called “double deflators”. And finally, instead of using the WPI, the new estimates use the producer price index (PPI), the prices received by domestic producers for their output. It may be mentioned in November 2025, the IMF made several critical observations regarding methodological weakness and coverage of India’s national accounts statistics, in particular, the lack of producer price indices and excessive use of a single deflator. With the introduction of the new methodology and price data, the IMF’s criticisms seem to have been addressed.
Concerns over revised estimates
How do we read the latest GDP estimates now that the government has explained reasons for the discrepancies in the estimates? Since the GDP estimates for April to June 2025 declined by over Rs 6 trillion after the new methodology was adopted, it would be fair to conclude that the government was overestimating the size of India’s GDP in the past. This is not all: estimates of the largest component of the GDP, private final consumption expenditure (PFCE), reflecting consumer demand, have major estimation problems. The revised estimate for PFCE for April-June 2025, released on August 31, was lower than its year-old estimate by over Rs 7 trillion (or by 14%). A sharply reduced PFCE figure could reflect depressed consumer demand, a major disincentive for growth. If producers of goods and services face reduced consumer demand, would they be producing at all?
A third anomaly in the estimates pertains to the reported growth of the manufacturing sector during the first quarter of 2026-27. This sector is shown to have grown by a healthy 9.2% in real terms, but in nominal terms (excluding inflation), the sector grew by 7.7%. Such a situation can happen only if inflation is negative or, in other words, the economy is facing deflationary tendencies. The government has clarified that the manufacturing sector faced this anomaly as prices of its inputs were higher than its final products. But higher input prices in comparison to output prices result in squeezing profit margins, raising doubts about the reported growth of the manufacturing sector.
Transparency remains a concern
The estimation problems aside, the lack of transparency regarding the use of revised methodology and revised data sets for estimating India’s GDP is the most significant concern. More than six months after the “improved” estimates of the GDP were first unveiled, the detailed methodology is not yet available in the public domain. Nearly a year after the IMF red-flagged the quality of India’s national account statistics, questions regarding the reliability of GDP estimates remain.
Prof Biswajit Dhar was the Director General of the Research and Information System for Developing Countries and was a professor at JNU.
