The unending saga of India's GDP data: True numbers beyond the story

According to the latest data, the economy grew at a staggering 7.8 per cent rate in the April-June quarter of 2025-26, far above forecasts made by economists based on all the other available data

In most countries, gross domestic product (GDP) data releases are routine. In India, they spark controversy. A decade after the new GDP series was introduced, questions about its credibility remain, leaving both analysts and policymakers unsure about the economy’s true health. 

According to the latest data release, the economy grew at a staggering 7.8 per cent rate in the April-June quarter of 2025-26, far above forecasts made by economists based on all the other available data. Unsurprisingly, the release has reignited a wave of scepticism and debate. 

There are several issues with the GDP series.  

The first problem concerns nominal GDP. For organised manufacturing and services, the National Statistical Office (NSO) relies heavily on firms’ financial filings with the Ministry of Corporate Affairs (MCA), collating data from firms that file regularly, and scaling up those numbers to take account of the firms that haven’t filed. However, many non-filing firms are defunct, loss-making, or mere shell companies that do not produce anything on a regular basis, but serve as conduits to hide profits or circumvent regulations. In such cases, inflating the data from filing firms to cover non-filers risks overstating GDP. 

A National Sample Survey Office (NSSO) survey of these MCA firms, conducted in 2016–17, found that nearly a quarter of the 35,000 firms surveyed either refused to share data, had shut down, or were untraceable. Its 2019 report confirmed major gaps in the pool of non-filing firms. Yet these firms continue to be included in GDP estimation. This implies that India’s nominal GDP suffers from measurement issues that can worsen depending on which firms are sampled in a given quarter. 

Measuring the unorganised sector is another weak spot. With no fresh data, the NSO extrapolates this sector’s growth from a 2011–12 survey, assuming that it tracks the growth of the private corporate sector. At one point, this assumption seemed reasonable. But the correlation between the unorganised and organised sectors broke down after 2016, when demonetisation, goods and services tax, and Covid hit the unorganised sector firms disproportionately harder. This has led to a further upward bias in GDP growth. 

Finally, there are serious issues with the GDP deflator. Once the NSO has calculated nominal GDP, it has to convert these figures into real GDP. To do this, it needs to use price indices, so that it can deflate away any increases in nominal GDP that were caused by inflation. This task is simple in concept, but complicated in practice. That’s because the NSO needs to choose an appropriate price index for each of the sectors that go into GDP. Then, it needs to deflate the inputs that go into the production of all these items, separately from the outputs. 

Why is all this work necessary? Essentially, because prices do not move together. Take air travel: Deflating airline revenues (a nominal figure) by the economy-wide price index does not tell us anything about the real increase in air travel in a quarter. What’s needed instead is a proper measure of ticket prices to capture the real growth in the sector. 

Unfortunately, many of the sectoral deflators in India are not appropriate. The most problematic case is the service sector, the largest sector of the economy, where the wholesale price index (WPI) is used, even though it barely tracks service prices. If instead, in the April-June quarter, this sector had been deflated using the service component of the consumer price index — which grew at a faster pace than the WPI—the calculated service sector growth would have been far lower than the 9.3 per cent recorded.  

Another deflator related issue in the first quarter was the divergence between input and output prices. As commodity prices slumped, WPI inflation dropped to 0.3 per cent while (output-measuring) CPI inflation stayed near 3 per cent. This difference may seem small, but it can have significant distorting effects. This is because cheaper inputs like oil push up manufacturing profits without boosting actual production. The only way to strip out this illusion is through “double deflation” — separately deflating inputs and outputs.  

Unfortunately, unlike most G20 peers, India doesn’t follow this procedure for bulk of the GDP estimation. Instead, it deflates nominal values only once. Even more problematic, it often uses the commodity-heavy WPI, which measures input prices, as its single deflator. This means nominal gains aren’t stripped out; to the contrary, they get amplified, counted once in rising profits and again through a falling deflator. The result: Manufacturing growth gets overstated. 

Why does this matter? Because GDP growth is the number everyone watches, especially policymakers. Yet, even as GDP data claims the economy is booming, policymakers have recently rolled out new GST measures to boost demand— an implicit admission that they themselves are not sure whether the economy is really as buoyant as the GDP numbers suggest.

The good news is that the statistics ministry is aware of all these issues and is working on fixes, with a new GDP series due in February 2026. Until then, everyone will need to continue to look at a wide variety of data in order to gauge economic activity.

 

 

The author is associate professor of economics, IGIDR, Mumbai. The views are personal