E-Paper
India's GDP: When no number high enough is enough
The 7.8% Q1 growth in a world in turmoil is not enough to satisfy the sceptics. We should ignore the noise and carry on with reskilling, reform and growth
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Just two months ago, the dominant story was of doom. The oil price rise due to the West Asia war, outflow of capital and rupee depreciation were all cited as reasons to prove that India was in a downward spiral.
The external shock, it was said, revealed the real problems of the Indian economy. But nations don’t roll over and die. They respond to crisis. Quick moves by the Reserve Bank of India (RBI) offering a rupee dollar swap window to attract NRI deposits stemmed the rupee slide and had to be discontinued due to the positive inflows.
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Even before the Ministry of Statistics and Programme Implementation (MOSPI) released the first quarter data on August 31, the high frequency indicators were already telling the story of a strong growth spurt in the months when everything went wrong. Industrial production, vehicle registration, goods exports, corporate earnings were showing green. The 7.8% first quarter GDP growth is built on both manufacturing growing at 9.2% and services at 10%, with both consumption and capital formation doing well.
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A gym body does not happen overnight. It takes years of careful eating and regular workouts. The steadiness of the Indian economy today comes on the back of tough decisions and financial prudence manoeuvred by the finance minister and the Reserve Bank of India (RBI). The hawk-like focus on the fiscal deficit number post-Covid has reduced it to 4.4%, down a full 200 basis points from FY 2022-23. This gave the government elbow room to absorb the oil price shock, removing the risk of runaway inflation. The push to manufacturing, and exports, and the focus on deregulation and decriminalisation of laws are all arrows in the quiver of reform. But sceptics remain unconvinced.
The biggest criticism is that the government reduced last year’s numbers to make this year look good. One former finance secretary has made the allegation that Q1 FY26 numbers were reduced to give the 7.8% number. The problem with this argument is that data from two different statistical series are being taken and compared.
Think of it this way: If the measuring tape changes, you have to go back and use the new tape to measure last year’s data to remeasure before you compare it with the present.
We know that India is in the process of moving to a new GDP series with a new base year — all countries do this. For the Q1 2026-27 estimate, the statistical system is effectively dealing with two different series — the older series and the new series — and the historical data have been revised to make the new series comparable.
There is an additional problem with the argument that data is fudged. The GDP computation maps billions of transactions across millions of aggregated data points, collected from diversified sources. It is humanly impossible to tinker with these data points in any meaningful manner.
The methodology has been developed after vast consultations over the past few years and the use of actual data, not just surveys, has been a change for the better.
For example, there are data sets that report on GST data, industrial production, consumption of steel, air traffic, results of listed companies, deposit and credit growth, vehicle sales data from e-VAHAN, food offtake data, tolls collected and many more.
The argument then moves to inflation: Inflation data is wrong because prices ‘feel’ higher. It is impossible to build a metric that takes into account the inflation experience of each individual. The average height of a class might be five feet, but there will be individuals much shorter or taller.
Averages are important to compare the direction of change as well as to allow us to collapse into a number the average experience of the group.
So, if inflation ‘feels’ higher to you, then it simply means that your consumption basket is not the average CPI basket. The July inflation point at 4.45% is well below the higher 6% band that RBI must not breach.
Then it shifts to the falling rupee. The rupee is falling, and that shows the weakness of the economy. But what is less understood is that the weakness of the rupee is related to inflation being managed and kept within a band of 2% to 6% by the RBI. A country has to choose between running an independent monetary policy that is setting interest rates to manage inflation, and a fixed exchange rate. India has chosen the former as runaway inflation is harmful to everyone.
If exchange rates are market-linked, then the rupee will react to market forces. RBI’s quick action in gathering NRI dollars has stopped both the rupee slide and the doomsday talking heads. But, what about stock markets, they are still down. True. While the domestic investment cycle is gathering momentum, the global capital flows remain an important source of volatility. Remember that the world is at its most unstable since the two world wars. However, July and August have seen the beginnings of a return of FII money into Indian equity, with net inflows of around ₹50,000 crore over the two months, after months of net outflows.
India is in a unique position in the world with high growth rates and low inflation amidst a very difficult global environment which is unlikely to change anytime soon. At the government, corporate and individual level we must not let down the guard.
And while we should criticise the government for urban planning, air quality, corruption and so on, the macroeconomic stability that has come by design and not chance, must be celebrated.
Monika Halan is the best-selling author of the Let’s Talk series of books on money. The views expressed are personal
