Datanomics: India's GDP surprise driven by deflator effect across sectors

The sharp uptick was largely due to the impact of GDP deflators, which remained unusually soft, particularly in the primary and secondary sectors

India’s economy grew faster than expected in the first quarter of 2025-26 (Q1FY26), with real gross domestic product (GDP) expanding by 7.8 per cent year-on-year from 7.4 per cent  in the previous quarter. The uptick was largely due to the impact of the GDP deflator, which remained unusually soft, particularly in the primary and secondary sectors. Deflator, which measures average change in prices, is used to convert nominal GDP into real GDP. While nominal growth eased to a three-quarter low of 8.8 per cent, a smaller gap between nominal and real growth rates pushed the real GDP print higher than anticipated.

 

On the back of softer price adjustment

 

The broad GDP data shows how the deflator shaped this outcome. Even  with a weaker nominal expansion, real GDP was lifted higher by the softer  price adjustment. A softer price adjustment in GDP means lower inflation. 

 

Sectors follow suit   Sector-wise data reflected the same trend. 

 

 

The growth story

 

Two-thirds of deflator is broadly based on wholesale prices and the rest on consumer prices. While real GDP growth is key for comparisons, nominal GDP growth has fiscal implications, particularly with higher income tax exemption limits and proposed GST cuts. For FY26, nominal GDP growth rate is projected at 10.1 per cent.