Q1FY27 GDP – An avoidable controversy amid robust growth story

For Q1FY27, India reported GDP growth of 7.8% yoy and gross value added (GVA) growth of 8.2%. While agriculture continued to lag, manufacturing and services more than made up for it. But the real story was an avoidable controversy.

First, the good news about the GDP numbers

Let us admit that a 7.8% GDP growth makes India the fastest-growing large economy in the world, by a margin. The robust GDP growth was supported by strong manufacturing and a robust growth in services. For India, the big advantage has been the strong domestic market, which has been driving growth. But there is more. India has also reported robust exports (while imports are also up), over the last few months. As a BBC report pointed out, the weak rupee has helped the merchandise exports in a big way. So, there is surely some genuine substance to the India GDP growth story.

Then why are we picking holes in GDP numbers

The entire controversy has stemmed from the decision to change the base year. According to Jairam Ramesh, better known for his linguistic eloquence, the GDP numbers were a classic case of “statistical gymnastics.” The reason being that the change in the base year (bringing it forward by 10 years) resulted in the base year GDP edging lower and artificially making the GDP look robust. This view was also seconded by Subhash Chandra Garg, former Finance Ministry official, who shared the view that the GDP growth was inflated by a lower base year data. While Jairam Ramesh had his political agenda, the view from Subhash Chandra Garg looked a lot more naïve!

Why the GDP criticism is totally out of place?

The entire controversy arose because the corresponding year-ago Q1FY26 GDP was reduced from ₹86 trillion to ₹80 trillion due to the shift in base year. Therefore, under the old base year, the nominal growth would have been 2.6% and not 10.3%, and the real growth would have also been much lower. However, the argument misses a simple point. This is true of any change in base year. Base years are periodically moved forward to better reflect the proximate reality. And it works both ways. It is doubtful if Jairam Ramesh would have complained if the change in base year had taken the real GDP growth down to 5%. As a senior economist said, this was a case of “intellectual dishonesty.”

An unseemly controversy misses the real point

In the entire controversy about base year usage, revision of old data, and the actual measure of GDP Deflator; a key point is being missed. That point was raised by Raghuram Rajan. As Rajan said, “The question was not about whether the GDP figure was overstated or not.” The question is whether higher GDP growth was translating into more jobs, higher per capita income and better living standards. That is the point most economists seem to be missing. To be fair, the Indian government and the RBI have managed the macro crisis quite appreciably. It is time to laud the effort and then focus on the real ground-level questions on the palpable impact of GDP growth!