Beyond the 7.8% number

The first-quarter GDP data released earlier this week, which widely beat forecasts, has sparked a fresh controversy over its credibility. Real GDP growth accelerated to 7.8% in Q1 of FY27, well above the RBI’s 7% estimate, reinforcing the impression of a resilient economy despite a difficult global environment.

However, the controversy over India’s GDP numbers is not new. It has been around since the introduction of the new GDP series, with questions over the old and new base years, revisions to historical estimates, and, more recently, changes in the data and methodology used to measure output. Therefore, before questioning whether the latest GDP number is credible, it may be wise to establish exactly what the problem is.

The first fact is straightforward. India has changed its GDP series. In February, the ministry of statistics and programme implementation replaced the 2011-12 base-year series with one using 2022-23 as the base year. This is not simply a change in the reference year. The new series incorporates new data sources, changes in coverage and classification, improved deflators, and a new method for benchmarking quarterly estimates. That matters because the new series has substantially changed the measured size of the economy. Consider Q1 of FY26. Under the old 2011-12 series, nominal GDP was estimated at Rs 86.05 lakh crore. Under the new 2022-23 series, the estimate for the same quarter is Rs 80 lakh crore. The ministry has, however, defended the revision as reflecting the use of new price and production indices with base year 2022-23.

Now consider Q1 of FY27. Nominal GDP under the new series is Rs 88.27 lakh crore, compared with Rs 80 lakh crore a year earlier. That gives nominal GDP growth of 10.3%. The reported 7.8% growth rate is based on constant-price GDP. Under the new series, real GDP in Q1 of FY26 was Rs 75.46 lakh crore, while Q1 of FY27 is estimated at Rs 81.36 lakh crore. The increase between the two is 7.8%. This is where the controversy begins. As some incorrectly argue, if one takes the old estimate of Rs 86.05 lakh crore for Q1 of FY26 and uses it as the denominator against the new Rs 88.27 lakh crore estimate for Q1 of FY27, the increase is only 2.6%, and they question whether the reported growth rate is being inflated by the change in the GDP series.

Therefore, those arguing that the 7.8% growth rate is actually 2.6% are mixing two different things. The 2.6% calculation is based on nominal GDP, while the 7.8% figure refers to real GDP growth. More importantly, the two nominal GDP numbers being compared come from different series. To resolve the controversy fairly, we need an estimate of Q1 FY27 constructed using the old methodology. Unfortunately, that number no longer exists as an official estimate.

However, since an appropriate old-versus-new comparison is not possible, the question then becomes whether other economic indicators corroborate the broad growth story. These indicators cannot prove that GDP grew by 7.8%, but they can tell us whether the underlying direction of economic activity is consistent with a strong first quarter. Several indicators are useful for this purpose. The most important are industrial production, capital formation, private final consumption expenditure, bank credit, exports, corporate performance, and GST collections. Industrial production grew by 6.7% in July, compared to 5.4% last year. It increased by 6.3% in April-July FY27, compared to 4.0% in the same period last year. Capital goods production rose by 16.1% this July over July 2025. Intermediate goods increased by10.0% and infrastructure and construction goods by 6.9%.

The investment story, for one, is encouraging. Gross fixed capital formation grew 11.9% in Q1 FY27, compared with 5.8% a year earlier. Private final consumption expenditure (PFCE) also registered healthy growth of 7.1% compared with the corresponding period last year (6.8%). Bank credit provides another corroborative signal. Credit to industry grew 20% in July, compared with 6.5% a year earlier, while credit to services expanded 22.9% against 10.2% previously. Agricultural credit also accelerated to 17% from 7.3%. Such broad-based credit expansion suggests the increase in economic activity is not confined to government spending or a few sectors. Exports also strengthened. Real exports grew 12% in Q1, compared with 6% a year earlier. More recent data show that combined merchandise and services exports reached an estimated $80.14 billion in July, up 13.3% from a year earlier. Cumulative exports during April-July were $316.42 billion.

Corporate activity offers a similar, though somewhat mixed, picture. Private-sector sales accelerated sharply in Q1, while corporate investment also appears to be recovering. RBI data show private corporate sector sales rising 19.4% year-on-year (y-o-y) in Q1 FY27, although higher input costs and taxes meant that the improvement in profits was much less pronounced. GST collections provide another broad indicator of activity. Gross GST collections rose 15.4% y-o-y to Rs 2.11 lakh crore in July, while domestic GST collections increased 10.1%. In August, gross collections were close to Rs 2 lakh crore, up 14.8% from a year earlier. Cumulatively, gross GST collections during April-August were up about 11%. These numbers are consistent with reasonably strong domestic economic activity, although GST collections are also influenced by compliance and import values.

Taken together, these indicators make it difficult to argue that the 7.8% GDP number has no economic foundation. Index of industrial production, investment, credit, exports, corporate sales, and tax collections are all pointing broadly in the same direction. While they do not statistically validate the GDP estimate, they corroborate the underlying momentum.

Yet there are reasons for caution. Employment remains one of them. The latest PLFS data are encouraging on the surface: the unemployment rate fell to 5.1% in July from 5.5% in June, while the labour force participation rate rose to 55.4% and the worker population ratio to 52.5%. But these numbers do not tell us enough about the quality, productivity, or remuneration of the jobs being created. A high-growth economy ultimately needs to translate output growth into productive and better-paying employment. Foreign investment is another area to watch. Gross FDI flows to India increased 14.8% in April-June FY27, while net FDI rose to $7.9 billion from $4.8 billion a year earlier. This is positive, but net outward FDI was also $9.3 billion.

Most importantly, risks largely unrelated to the statistical debate could materially affect the growth outlook. Oil prices have become a concern again. Brent crude was around $95 a barrel on September 3, amid renewed US-Iran tensions and disruptions around the Strait of Hormuz. For an economy heavily dependent on imported crude, a prolonged oil shock can widen the trade deficit, raise inflation, and squeeze domestic demand. The monsoon presents another uncertainty. August rainfall was 16% below normal, taking cumulative rainfall for June-August to about 86% of the long-period average. The IMD expects September rainfall to be below normal as well. This creates risks for kharif yields, rural incomes, and, consequently, rural consumption in the second half of the year.

The 7.8% growth number should therefore be neither dismissed as fabricated nor accepted without scrutiny. Credibility ultimately depends on transparency around a consistent back series, a clear old-to-new reconciliation, and enough disclosure for independent researchers to reproduce the estimates, which could finally put the controversy at rest.