GDP Analysis: India's Q1 2025-26 Growth Below 6% Percent Amid Inflation Concerns

The National Statistics Office (NSO) happily announced the first quarter 2025-26 (Q1-FY26) real GDP (Rs 47.89 trillion at constant 2011-12 prices) growth of 7.8 percent over the growth of 6.5 percent during Q1-FY25, hailed as the highest growth in the last five quarters, since Q4-FY24 (graphs prominently inserted in the Press release to drill the point home).It gives me a lot of satisfaction whenever India’s real GDP growth - quarterly, half-yearly or annual - crosses 7.5 percent. The 7.8 percent growth rate for Q1-FY26, however, did not sound quite realistic. It was higher than everybody’s estimate, including government agencies- RBI, Ministry of Finance, SBI Research. The nominal (at current prices) Q1-FY 2026 GDP growth, however, was only 8.8 percent over the 9.7 percent growth in Q1-FY25. It was also the lowest nominal GDP growth in the last three quarters. There was no graph to present trend growth of nominal GDP.The difference of 1 percent between the nominal GDP (8.8 percent) and the real GDP (7.8 percent) implies the inflation of only 1 percent, which certainly is not the case in India. How did the government than achieve this designer Q1-FY26 GDP growth of 7.8 percent? What is the real real GDP growth of Q1-FY26?The NSO, which prepares the GDP numbers, uses what is known as the Benchmark-indicator method as it is impossible to collect production and consumption data directly from crores of businesses and consumers. Most proximate indicators like crop production advance estimates, quarterly financial performance of listed companies, sales of commercial vehicle, cargo handled by railways, bank deposits and credit, accounts of central and state governments and, in all 20 major indicators (Annexure B) go into the gross value added (GVA) and gross domestic product (GDP) computations. The data relating to all the benchmarks are collected in current prices, as these are available only in current prices, and in physical quantities, wherever available.The current GVA/GDP is thus compiled first and is the original GVA/GDP arrived at by the NSO/government. This is fairly reliable and involves no price/inflation judgements. The nominal growth at current prices can thus be taken as fairly close to the actual performance of the economy. There is, thus, no reason to doubt the accuracy of 8.8 percent nominal GDP growth in the first quarter of 2025-26, which incidentally is about 1 percent lower than the 9.7 percent GDP growth in the first quarter 2024-25.There are two impeccably relevant elements to test whether the NSO/government derived the real GDP reliably or is it intended to be a designer product. First, the inflation performance. India’s consumer price index (CPI) year on year inflation stood at 3.16 percent at the end of April, 2.82 percent at the end of May and 2.10 percent at the end of June 2025. The average consumer inflation during the first quarter was 2.7 percent (Annexure B). While the wholesale price index (WPI) was quite benign, actually a negative at - 0.39 percent in April, - .0.06 percent in May and -0-19 percent in June, for the first quarter overall, it was 0.3 percent (Annexure B again). The overall inflation was thus way above the implicit inflation of only 1 percent factored in by the NSO/government. There are disputes/debate about the way the NSO/government calculates the GDP deflator (inflation in common understanding) for converting nominal GDP into real GDP and its methodology (using only single deflator for all constituents of GDP against international practice of using double deflator, which allows use of sectoral specific inflation factors).Be it as it may, the NSO/government’s use of a very low inflation/deflator provided an artificial prop to the real GDP of Q1-FY26.Second, the physical performance of economy which is reflected in the physical production data.The NSO/government provides physical performance data in the GDP press release (Annexure B). If one examines the Q1-FY26 GDP press release (Annexure B), the physical performance of almost all the major indicators is found to be much lower in the first quarter of 2025-26 than the first quarter of 2024-25.For manufacturing growth, the all relevant physical indicators, barring cement and capital goods, were down. Consumption of steel was down from 15.3 percent to 7.9 percent, sales of commercial vehicles from 3.7 percent to -0.6 percent and so on. The IIP manufacturing itself was down to 3.3 percent from 4.3 percent. Yet, the NSO reported 7.7 percent gross value added (GVA) growth in manufacturing in Q1-FY26. Trade, hotels, transport, communication and services relating to broadcasting growth has been reported at a high of 8.6 percent. However, almost all the benchmark indicators reported poor physical growth. Railways handled only 0.7 percent higher cargo tonnage against 4.5 percent handled in first quarter of 2024-25. Passengers growth was a tepid 3 percent against 8.3 percent in Q1-FY25. Growth of passengers handled at the airport was down to 5.6 percent in Q1-FY26 against 7.1 percent in Q-FY2025, whereas growth of cargo handled at the airports was down to 5.4 percent against 13.9 percent in the Q1-FY25. Is India Really a ‘Dead Economy’? Let’s Cut Through the NoiseThe bank deposits growth was lower at 10.3 percent against 13.9 percent in Q1-FY25 and credit growth was also lower at 10.4 percent in the first quarter of 2025-26 against the growth of 13.9 percent in Q1-FY25. Still, the growth in the financial and real estate sector has been reported at 9.5 percent in Q1-FY 26, much higher than the growth of 6.6 percent in the first quarter of 2024-25.The only sectoral factor recording much higher growth in the first quarter is revenue expenditure less interest payment and subsidies, which recorded growth of 9.8 percent in the first quarter of 2025-25 against growth of -1.5 percent in Q1-FY25 (election effect). This, however, did not lead to any appreciable increase in GVA growth of public administration, defence and other services which recorded growth of 9.8 percent in Q1-FY26 against 9.0 percent in Q1-FY25.The real GDP growth in production reported by NSO/government is not really supported by the growth performance in the physical benchmarks.The NSO/government, therefore, definitely made use of some creative assumptions of inflation and other factors to come up with the designer real GDP growth of 7.8 percent in the first quarter.The physical benchmarks suggest a distinctly lower growth in the first quarter of 2025-26 than in the first quarter of 2024-26. The inflation deflator realistically cannot be anything less than 2.5 percent. Taking these factors into consideration, the real GDP growth has to be about 2.5 percent to 3 percent lower than the reported growth of 7.8 percent. In my assessment the real GDP growth in the first quarter of 2025-26 was between 5.8 percent to 6.3 percent. I would, therefore, place the real GDP growth in the first quarter of 2025-26 at 6 percent against the growth of 6.5 percent in the first quarter of 2024-25.(Subhash Chandra Garg is the Chief Policy Advisor, SUBHANJALI, and Former Finance and Economic Affairs Secretary, Government of India. He's the author of many books, including 'The $10 Trillion Dream Dented, 'We Also Make Policy', and 'Explanation and Commentary on Budget 2025-26'. This is an opinion piece, and the views expressed above are the author’s own. The Quint neither endorses nor is responsible for the same.) India Hasn’t Licensed a New Universal Bank Since 2016. Why That’s a Problem

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Topics: Inflation Economy GDP