GDP Growth Debate Big Numbers, Tough Questions

Dhurjati Mukherjee

The economy showing a stronger performance with 7.8 per cent GDPin the first quarter of current fiscal has sparked a fierce debate over what the headline number really says about India’s economic health. The Government attributes the strong performance to reforms, robust activity in manufacturing and services and rising investment. Critics, however, question the methodology and the sustainability of the growth, leaving the common man wondering whether the impressive number is translating into an equally impressive improvement on the ground.

The controversy, refusing to die out, was kicked off by former finance secretary, Subhash Chandra Garg, who argued the economy grew by 2.6 percent in the April-June quarter rather than the reported 7.8 percent. He pointed out that GDP at current prices stood at Rs 88.27 lakh crore in QI in the current fiscal against Rs 86.05 lakh crore in Q1 in GY26 under the earlier series, an increase of just 2.6 percent. Prof. Kaushik Basu of Cornell University described Garg’s analysis as the best he had heard so far, flagging the decline in India’s investment rate from around 38 percent in 2007 to below 34 percent, saying the trend needed attention. Former RBI governor, Raghuram Rajan added another dimension: “If we are growing so fast, why aren’t we creating more good jobs and why is investment not taking place? Why is FDI not coming in a bigger way?”.

Congress General Secretary Jairam Ramesh questioned the real growth story against the backdrop of retail inflation being around 3.8 per cent. Said he: “If one actually sits down and looks at how this number was arrived at, the whole thing starts looking shaky...Now, the figure for the previous April-June 2025 quarter has been revised not once but four times from around Rs 86 lakh crore to about Rs 80 lakh crore. And here’s the catch, if you keep shrinking the base you’re comparing against, this year’s number will automatically look much bigger than it really is, even if nothing has changedon the ground…”

The government has hit back. Union Minister Piyush Goyal said the GDP figure reflected the “hard work of 140 crore Indians” and could not be challenged by comparing figures drawn from different GDP series. “Ministers don’t manufacture this data,” he said, adding “A few jobless people call themselves economists and appear on TV channels to harm the country. Do not fall for this.”

In a detailed response, Secretary, Ministry of Statistics &Programme Implementation, Saurabh Garg,said the claim was based on comparing figures from different GDP series and using current-price estimates instead of the constant-price measures used to calculate real growth.Under the new series, Q1 FY2025-26 current-price GDP was initially estimated at Rs 80.32 lakh crore. It was later revised to Rs 80.44 lakh crore and then to Rs 80 lakh crore after updated data, including the new Index of Industrial Production and Producer Price Index, were incorporated.He also pointed to strong volume growth in sectors such as cement, steel and automobiles, describing comparisons across incompatible measures as an “apples and oranges” exercise.

Notably the government has changed the methodology for calculating the GDP twice this year. Just in time for the latest round of GDP estimates in June, it moved away from the WPI for its calculation. At same time, private sector economists have spoken about the growth momentum, expecting it to sustain with high frequency indicators such as industrial production, services activity, credit growth and investment spending. How much investment will come from this sector and with an increase remains to be seen.

The fact that private consumption growth is 7.1 percent is encouraging. But it would be prudent to analyse it in the urban and rural sectors. The upward spiral of consumption may be limited to only a section of the population which lives in metros and big cities. The question arises whether this consumption spike can be expected to last throughout the fiscal year with prices of commodities like sugar, oil and onions already showing an uptrend? Rainfall deficit would further affect agricultural output and prices too.

Interestingly, the growth figures follow a Bernstein report that India’s recent corporate earnings and resilient consumer demand may be receiving an artificial boost from government subsidies, fiscal support and external liquidity rather than being driven entirely by gains in economic productivity, global brokerage. It described the current market environment as a ‘distortion economy’ where policy interventions could be masking underlying structural weaknesses.

The brokerage company warned that treating temporary state-funded transfers as a permanent source of support for corporate earnings could lead investors to design excessive valuations to companies. It is understood that the oil marketing companies (OMCs) absorbed $2 billion losses while the Centre bore another $1 billion through excise duty cuts, LPG subsidies and fertiliser support. Together these measures effectively amounted to $10-13 billion transfer to consumers, helping sustain spending across the broader corporate sector.

Bernstein’s review of 30 large companies found that 78 percent of consumer companies either did not raise prices or implemented only partial price increases. The brokerage and companies were, therefore, benefiting more from higher volumes, supported by the consumption stimulus than from stronger pricing power.

Though Bernstein attributed part of this resilience to expanding welfare transfers than a broad-based improvement in agricultural productivity or farm incomes, in western context, for a country like India welfare measures in some areas like monthly support for elderly citizens, widows and persons with disabilities has sharply declined over the last decade due to inflation. Thus, except the free and subsidised food programme, there is hardly any significant welfare programme.

At the same time, the pressure of maintaining a reasonable trade deficit has so far rested on India’s service in exports. With the global economy shuttering, the growth of artificial intelligence service elsewhere could hurt demand for Indian service exports going ahead. Moreover, the deficient monsoon could hurt rural demand in most of the states. Already consumption data for July points to sluggish rural demand.

While industrial development has to move forward, manufacturing with appropriate technology and economies of scale must be the core focus. India has achieved significant progress in recent years in the fields of electronics, pharma, space and even defence production and new innovations in these and other fields are much needed. Sovereign AI is the need of the hour to develop our own ecosystem, from chips to foundational models and apps.

Finally, oil prices have breached $100 and are hovering around $105-107 as escalating West Asian tensions have been causing disruptions to global supplies. It’s obvious the rise of over $14-15 will obviously result in domestic inflation, which is already manifest as fuel, transportation and other energy costs rise. The question remains how long the international prices will remain elevated.

Whatever may or may not be the authenticity of the first quarter GDP figures, the second could prove considerably more demanding, particularly if high oil prices, global uncertainty and weak rural demand persist. The real test of India’s growth story is not simply how fast GDP rises, but how widely its benefits are distributed and how firmly the foundations for the next phase of growth are being built INFA