India GDP - Are numbers lying?
India's GDP numbers are under scrutiny since 2015 after the GDP series changed. The numbers do not seem to reflect reality. But this is good. Let me explain.
India’s GDP numbers have confounded real economists1 for some time now. The growth is numerically robust but the real experiences do not tally with these high numbers.
I have a hypothesis as to what is happening on the ground. To understand that we need to simplify the reality of Indian economy. Lets dive in.
Jackets & Juices - A simplified economy!
Imagine an economy with just two industries - jackets and juices.
Now imagine that most of the jackets are made in formal economy by corporations or high-turnover professional tailors etc. Therefore the workings of jackets industry is visible to government, appears in most of the reported data and is trackable. There is a small percentage of jackets industry that is artisanal and hence not visible in the data.
Juice industry, on the other hand, is a cottage industry. It is largely informal and most of the production, sales and inventories of this industry is outside the measured economy. Now some small segment of juice industry is actually formalised and involves corporates and hence effectively reports good data.
Estimating the GDP of this Jackets-Juices Economy in theory
By definition, GDP of this economy will be the actual production of jackets and juices in that particular year.
GDP growth will represent how much the production of this year is higher/lower than previous year.
Clearly, just adding number of jackets and juices will not make sense. Hence GDP is measured in value of the jackets and juices produced.
To calculate value we multiply number of jackets and juices produced by its respective price. When we multiply the number of jackets and juices produced in ONE year with the prices of THAT year we get NOMINAL GDP.
NOMINAL GDP of this country may increased over last year in various ways. One, the number of jackets and juices may remain the same but their prices may have increased. OR Two, the number of jackets and juices may have increased but their prices have remained same. OR Any other combination of these two.
But GDP measures only production not prices. We added prices because it did not make sense to add jackets and juices together to get a measurable number. So how do we compare this years GDP with past year’s GDP. To clarify this we introduce a concept of BASE YEAR.
We fix a BASE YEAR arbitrarily - say 2011. We note down the prices of jackets and juices in this year. Now this year we take number of jackets and litres of juices and multiply with 2011 prices. This gives us REAL GDP of this year.
This is all ok if we know the exact number of jackets and number of litres of juices produced this year.
We know reasonably the number of jackets produced this year because all the factories and tailors report them because they are formal industry. We get their number.
But we know that some jackets are made by artisans. How to estimate that number? What if it increases suddenly? What if there is a make-your-own-jacket campaign and many people are doing so? To understand this number we do a survey of these artisans all over the country. Again this happens on any random year - say 2018. Based on the survey we get to know that for every 100 jackets produced by the formal industry, 10 are produced by artisans informally.
We use this equation to estimate the number of jackets in 2025. Now over the years between 2018-2025 things may change so we do that survey after every few years to be certain of our approximations.
Now to juices!
How to estimate the number of litres of juices produced? This is a largely informal industry. So what can we do?
Survey! Here we undertake a survey and estimate the size of juice industry in one particular year - say 2015.
Then we compare the size of jacket industry with juice industry in 2015. We conclude that in 2015 juice industry is about the same size as the jacket industry.
So for every year subsequently, we estimate that juice industry will be the same size as the jacket industry.
Thus in 2025 too we presume that juice industry will be same size as jacket industry.
Is it actually so? We wonder. Hence we check with the formal players in the juice industry to check if they are growing in line with the jackets industry. We also do a random survey of very few empanelled juice sellers and check if their sales matches the jacket industry.
After confirming these we compute 2025 GDP
We take jacket production, adjust it for informal jackets produced
We assume juice production has changed just as much as jacket production did. We verify the numbers.
We multiply these with prices of 2011.
Now we get REAL GDP of 2025!
Estimating the GDP of the Jackets-Juices economy in practice!
Armed with above theory you start meeting Jacket industry people and ask them for jacket production numbers. They look confused - which jackets they ask. Rain jackets, winter jackets, diving jackets, mountaineering jackets, evening jackets, dinner jackets… One jacket company counts thick-twill shirts as jackets. There is confusion about waist coats and vests.
So, to avoid all confusion, you take the units sold, current prices and total sales and you get out of their office. After getting that shock in formal organised Jacket industry you are crestfallen before going to juice industry.
The juice industry sells different juices, concentrates, ready-to-drink, fresh, pasteurised, frozen varieties of juices of different fruits. Even within fruits the prices vary - alphonso mango, Himachal Apples, Florida Oranges, etc. There is confusion if Coconut water is juice or not. Some juice makers are actually selling pulps. Are pulps juice concentrates or are they separate. It makes no sense adding litres of pulp to litres of orange juice. So here too, you take the number of litres, current prices and total sales and leave.
Now how to compute the GDP?
You get the nominal GDP contribution of 2025 of Jacket Industry by looking at their sales for the year 2025.
You will apply the approximation of Juice Industry will do just as well. You will confirm it by calling up Juice companies and empanelled juice sellers.
You will add the two and arrive at the total Nominal GDP for 2025.
Now you will look at the details for Jackets
There will be jackets that are being sold in 2025 but they were not created in 2011, your BASE YEAR. All these can be classified as Speciality Jackets or Other Jackets.
You compare the various types jackets sold in 2025 with those in 2011 your BASE YEAR.
You will do the same exercise with Juices.
You compare the prices of various types of jackets and juices sold in 2025 with those in 2011 and in 2024. The change in these prices will help you calculate something called the GDP DEFLATOR.
Now you will estimate the current real GDP by reducing the Nominal GDP by the GDP Deflator.
What I mean is…
GDP calculations are a lot of data manipulation. Even for our simplified Jackets-and-Juices economy we have landed up with so much complexity. A real economy has many products, sub-products, services, valuation of services etc.
That does not mean it is all made up. As Dr. Subir explained to me once, GDP is a statistical analysis that tries to come as close to the reality as it can. It will always have errors and will not EXACTLY measure the real economy. What we want is the process to be true and it should be able to capture the change in the economy effectively. Hence total GDP is one thing but GDP growth is better metric as it eliminates the consistent gaps.
Think of GDP calculations as looking at the economy though a foggy or rainy windscreen. You wont see the road clearly but you should see enough to alert you to what is ahead. At the same time it cannot be bad or broken glass which creates distortion.
With this background let me propose what has happened in India.
Here is my hypothesis:
The Total GDP of India is like the GDP with Jackets (formal, relatively easier to estimate and mostly visible) and Juices (informal, not easy to estimate, hardly visible).
However, a confluence of forces have impacted the nature of Indian economy since 2011:
Transition from a high-inflation to low-inflation regime. This has affected the price of Jackets and Juices. This is as much a psychological process as it is rational demand-supply decision. I wrote about this back in 2019. This transition, imported goods deflation from China, and fluctuating energy and food commodity prices result in wildly oscillating GDP DEFLATOR.
Financialisation and digitisation: Thanks to JAM trinity, a large part of payments have moved to digital realm. Government is also streamlining taxes (just a bit but right direction) and attempt to reduce unnecessary regulations. This moves the participating industries into formalisation. It also increases the VISIBILITY of their GDP contribution. Thus, in our example, the Juices part of the economy has started becoming more visible. Experts see it as “reduction” in informal sector. I see it as better or more accurate counting.
Nature of the economy has changed: Our consumption pattern (how many jackets and how many types of juices and how much) are changing drastically as more young people become adults. Technology and new realities like pandemics are reshaping our consumption habits. The BASE YEAR does not account for such change.
Finally, the formula, the algorithm for calculating GDP, the validation systems, the empanelled sources and methodology for survey to measure informal GDP are showing cracks.
These are not wrong - just old.
But a $4 Trillion economy needs to have better mechanisms to measure the prices of various products and services in a more error-free manner.
IMF realises this when it gave Indian data a “C-grade” implying/positing that India may be under-reporting the correct GDP numbers.
Central Government has taken steps with corrective statistical tools being designed and new GDP series with new BASE YEAR supposed to be announced soon. COVID has delayed some of these developments (for instance census, Consumption Survey, NSSO survey, The Annual Survey of Unincorporated Sector Enterprises (ASUSE), etc.)
The VISIBLE GDP has grown very fast (because we are able to count more juices and that small part of Jackets too).
The INFORMAL GDP has partly been formalised and partly remains informal. It is growing too. Our capability to estimate it has become better. But since we are using old series we are trying to reduce errors.
The adjustment because of the GDP DEFLATOR and the way it is calculated has amplified the GDP growth. As a mathematical corollary, it excessively suppressed the GDP growth previously. Since it is more of mathematical adjustment and hence the on-the-ground euphoria is missing.
Consequently, the Total GDP may have grown like usual - i.e. both Jackets and Juices clocking the usual growth.
It seems to be lesser than what the numbers make us believe.
And it may have been higher than what numbers stated in earlier time 2015-2020.
In Sum
The GDP growth conundrum is a misunderstanding. It may correct itself partly just with passage of time (inflation regime adjustment) and mostly with better computational capabilities of new series. But, in the mean time, policy makers need to understand this dynamic. I believe the numbers pushed the RBI into cutting interest rates later than ideal.
I think it would be better to follow Nominal GDP and inflation together along with Real GDP to understand the Indian economy better.
Thank you for reading this far. If you need to dive in more detail refer to notes, readings and references section.
Notes, Readings, References.
Here are some articles highlighting the discrepancies in GDP reporting. These sources range from academic working papers to financial news analysis, focusing on the disconnect between headline GDP figures and the “ground reality” of the Indian economy.
India’s GDP Mis-estimation: Likelihood, Magnitudes, Mechanisms, and Implications [Harvard Kennedy School (Working Paper by Arvind Subramanian)] This seminal paper argues that India’s change in GDP methodology (post-2011) led to a significant overestimation of growth, potentially by 2.5 percentage points annually. It posits that the new method heavily relies on formal sector data (like corporate filings) as a proxy for the informal sector, thereby missing the declines in the real, unorganized economy. [Download here]
Is India’s Q2 GDP Surge Believable? [The Wire by Arun Kumar former professor of economics at JNU] This December 2025 article, couched in anti-Modi language, questions a specific surge in GDP (8.2%), noting that high-frequency indicators (like diesel consumption and freight traffic) did not match the headline growth. It highlights how the “production side” estimates often decouple from the “expenditure side” due to a lack of real-time data on the informal sector, leading to massive statistical “discrepancies.”
Beyond The Headlines: A Closer Look At India’s Higher-Than-Expected Q2 Growth [Swarajya by Pramod Hegde] This analysis focuses on the “Deflator” problem. It explains that when wholesale inflation (WPI) is negative, it artificially inflates the “Real GDP” number. The author calculates that this statistical anomaly likely added over 1 percentage point to the headline growth, meaning the “real” volume of economic activity was much lower than the 8%+ figure suggested.
GDP data revisions—why India still struggles with sharp variations [The Print but article is by AK Bhattacharya, Editorial Director, Business Standard] This article critiques the reliability of the data itself, noting how initial growth estimates are often revised drastically upwards or downwards years later. It suggests that these constant, sharp revisions indicate a struggle to accurately capture economic activity, making the “final” numbers less credible as a real-time policy tool.
Also read
Moneylife Article: How Lower Inflation Lowered Economic Growth with Many Knock-on Effects
This needs some clarification. There are three types of economists in India:
Partly-qualified: They see India through non-Indian lens and hence apply western models without adjusting them to Indian conditions. I consider this bunch to be well-intentioned but do not realise that there is difference between theory and practice. They often pick up western talking points and think that whatever data the west produces is what India should produce.
Pseudo-qualified: They are intent on proving their thesis ignoring whatever contradicts it. Some of them come with advanced degrees and are eloquent. But their research and recommendation do not tally with each other. Their views influences their research. They will mock the best achievement
Real: They really explore the economy and ask genuine questions. They want the data to explain the claims and they want to understand the calculus of government and central bank data.