Datanomics: Subsidies weigh on GDP growth despite strong GVA expansion

India's GDP grew 7.8% in Q1FY27, below 8.2% GVA growth as subsidies restrained net indirect tax growth, widening the gap between the two measures

Gross domestic product (GDP) growth rose by a higher-thanexpected 7.8 per cent in the first quarter of 2026-27 (Q1FY27), albeit lower than 8.6 per cent in Q4FY26. Had subsidies not led to the reduced growth rate of net indirect taxes to 3.9 per cent in Q1FY27 — the lowest in at least five quarters — GDP growth would have been higher. Gross value added (GVA) grew much higher at 8.2 per cent in the quarter. Net taxes (product taxes-subsidies) are added to GVA to arrive at GDP figures. Government subsidies rose in Q1FY27 due to state freebies and the Centre’s fertiliser subsidies. For instance, the Centre's major subsidies rose by 37.4% in the quarter year-on-year compared to a 7.3% decline in April-June FY26. The government now uses producer prices as a new deflator instead of wholesale prices. Higher growth in deflators for Q1FY27 also raised the gap between GDP growth at current prices (10.3 per cent) and at constant prices (7.8 per cent). India continued to clock the highest growth among six largest economies.