GDP row: Could govt and Subhash Garg both be right?

The controversy over the government’s claim of 7.8 per cent GDP growth in the first quarter of the current year has raged for several days. Prime Minister Narendra Modi and finance minister Nirmala Sitharaman have described the figure as a cause for celebration, though growth in the first quarter of last year was also exactly 7.8 per cent. The prime minister, however, cautioned the country about supply-chain disruptions amid wars around the world and advised Indians to stop buying gold or travelling abroad.

Former finance secretary Subhash Chandra Garg questioned the growth claim during a television appearance. He pointed out that aggregate economic activity, estimated at Rs 88 trillion in April-June, looks impressive only because the government revised its estimate for April-June 2025 from Rs 86 trillion to Rs 80 trillion.

With the new base of Rs 80 trillion, the Rs 88 trillion figure translates into nominal GDP growth of 10 per cent. After adjusting for inflation, the government arrived at the 7.8 per cent real GDP growth figure.

However, had the government not revised last year’s estimate downwards, growth from Rs 86 trillion to Rs 88 trillion would have been only about 2.3 per cent in nominal terms. After adjusting for inflation, Garg argued, real GDP growth would effectively have been zero.

The government defended the 7.8 per cent figure by pointing out that a new GDP series was introduced in February, with 2022-23 as the base year, replacing the earlier 2011-12 base year. This involved recalculating past data using updated sources and coverage. Other methodological changes included the use of the Producer Price Index (PPI), an updated Index of Industrial Production (IIP), and the adoption of the double-deflation method for manufacturing.

The government said Garg was wrong to compare data from the new series with the old series.

Garg argued that when GDP is measured at current prices, or as nominal GDP, the choice of base year should not matter because it simply measures the value of goods and services at prevailing prices.

However, this overlooks the fact that the ‘denominator’ in his comparison — last year’s first-quarter GDP — is no longer the same as before, having been recalculated under the new methodology. Garg is therefore comparing this year’s nominal GDP under the new series with last year’s nominal GDP from the old series. The new series has also re-estimated sectoral weights and valuation methods, including manufacturing through double deflation.

Several economists and government spokespersons described Garg’s deductions as unfortunate, uneducated, wrong and simplistic. He has been accused of comparing apples with oranges. The government has also maintained that there was nothing wrong with the methodology and that India had followed global practices. It downplayed the downward revision of last year’s first-quarter GDP, pointing out that such revisions are normal and had taken place even when Garg himself was finance secretary.

At this point in the debate, Congress Rajya Sabha MP Jairam Ramesh pointed out that the government had revised last year’s estimate not once but four times. In a statement, he said the government had revised GDP estimates for the last four years, with virtually every quarter being revised downwards. The revisions over this period, he claimed, had knocked Rs 10-12 trillion off the estimates each year, suggesting that the government had been overestimating GDP. Ramesh estimated that GDP had been lowered by as much as Rs 43 trillion, or Rs 43 lakh crore, over the last four years.

Writing in the Indian Express, former chief economic adviser Arvind Subramanian notes that doubts about India’s GDP numbers have persisted for several years, particularly since 2016-17, when the government claimed GDP growth of 8.2 per cent in the wake of demonetisation, which decimated large parts of the informal economy. Public trust in official data has been low since then, he argues. This scepticism has been fuelled by what he describes as the government’s failure to release data and explain the methodology fully, including why first-quarter 2025 GDP was revised downwards by seven per cent.

More importantly, Subramanian underscores that April and May were ‘months of shortages’. Fuel was being rationed, LPG cylinders were scarce and sold on the black market, the stock market sagged, the Indian rupee was under pressure, unemployment remained high and wages stagnant. These, he argues, were hardly signs of an economy doing well. Geopolitical anxieties were also high, the Strait of Hormuz was closed and oil prices were rising. Even the Reserve Bank of India estimated that the economy had slowed in the first quarter.

Yet the government would have us believe that in the first quarter of April-June, the Indian economy performed not only well but better than it had a year earlier.

So, who is right — the government or Subhash Chandra Garg? As a wag suggested, they could both be right.

Garg is right to point to the ‘lived reality’ of people weighed down by high prices and a sluggish economy. The government may also be right in pointing to the ‘statistical reality’ of higher government spending, increased capital expenditure and exports. But when households are struggling to buy goods and services and household savings are low, a higher GDP number offers poor consolation.