India’s GDP growth sparks exuberance, but contradictions raise red flags

India’s GDP expanded by 7.8 per cent in the April–June 2025 quarter, a headline figure that has drawn applause and bolstered the country’s reputation as one of the fastest-growing major economies.

Yet, amid the celebration, leading economists and banks have raised concerns that the impressive growth masks contradictions that may undermine its sustainability.

Congress MP Jairam Ramesh was among the first to highlight these concerns publicly. In a post on X, he wrote, “The GDP numbers for the period April–June 2025 have led to irrational exuberance. They do present some contradictions that have been highlighted by a respected bank report and that cannot be brushed aside.”

Ramesh pointed to several discrepancies:

• Urban consumption remains considerably weak, while rural consumption continues to face structural constraints.

• Nominal GDP growth, unadjusted for inflation, is still subdued and markedly lower than in the January–March 2025 quarter.

• A full 1.8 percentage points of the quarterly growth rate are not accounted for by the usual drivers—consumption, investment, and trade.

• Manufacturing sales growth has slowed even as profit margins benefited from softer costs.

• The Trump tariff shock is absent from the data, with export growth artificially boosted by front-loading shipments to the US.

These concerns echo warnings from HSBC India, which in a recent research note flagged the role of a soft deflator in inflating “real” GDP numbers and pointed out that high-frequency data such as consumer confidence, vehicle sales, and corporate earnings do not align with the official figures.

Other institutions, including JP Morgan, IDFC FIRST Bank, and Standard Chartered, have also urged caution.

Sectoral disparities are evident. Services and some rural spending have lifted growth, but urban demand has faltered, manufacturing has struggled with slowing sales, and mining and utilities have shrunk.

More worryingly, the unexplained 1.8 percentage-point contribution to GDP growth suggests that the data may overstate the underlying momentum of the economy.

The export front further complicates the picture. While shipments to the US rose sharply in the quarter, much of this reflected companies rushing to beat new tariffs imposed by Washington. Economists warn that the true impact of these tariffs will begin to weigh on growth in the second quarter.

For now, India’s GDP surge has fuelled optimism. But as Ramesh and respected banks underline, the exuberance may prove misplaced if fundamental drivers of urban consumption, investment strength, and trade resilience do not stabilise.

The coming quarters will reveal whether the April–June spurt was a sign of durable expansion or merely a statistical high point masking deeper challenges.