Moneycontrol Pro Weekender | New GDP numbers, new economy

The manufacturing recovery, flagged in the Q3 corporate results, has shown up in the data as expected

Dear Reader,

Now that we have a brand-new GDP series with base year 2022-23, with many more up-to-date data sources and better methods of computing the real from nominal data, how different is it from the old series? The revisions tell three uncomfortable truths: the economy is smaller than we thought, investment is weaker, and the sectoral map looks quite different.

Well, the first thing is that nominal GDP for FY26 is now estimated at Rs 345 lakh crore while it was Rs 357 lakh crore as per the first advance estimate in January this year. That’s around 3 percent smaller, suggesting the size of the Indian economy was a bit over-estimated earlier. That is true for the 2024-25 and 2023-24 nominal GDP size as well. With better inputs, the true GDP size is now evident.

That is true for Gross Value Added at current prices, too. This was Rs 323 lakh crore for FY26 in the old series and it’s now estimated at Rs 313 lakh crore. For FY25 and FY24 too, GVA at current prices in the new series is lower than under the old series.

Real GDP growth is now estimated at 7.6 percent for FY26, higher than the 7.4 percent estimated under the 2011-12 old series. That is good, but then the growth rates for earlier years have also changed. The FY24 GDP growth is now at 7.2 percent, compared to a surprising 9.2 percent in the old series while for FY25 it’s now 7.1 percent vs 6.5 percent in the old series. So, there are base effects that are working out -- in short, we grew more slowly in the boom years and somewhat faster since.

Looking under the hood, we find that ‘discrepancies’ have now, for FY26 estimates at constant prices, gone up to 1.5 percent of GDP under the new series, compared to 0.7 percent  in the old series. This is a puzzle that deserves attention: Surely the ‘discrepancies’ figure should have come down, as the estimate is now better?

Private consumption, of course, is the mainstay of growth, accounting for 55.7 percent  of GDP at constant prices for FY26, although it’s a bit lower than its share of 56.3 percent of GDP under the old series. The real difference, though, is in gross fixed capital formation — It’s now pegged at 32 percent of GDP, well below the 33.8 percent of GDP estimated under the old series. So much for the revival of investment demand. On the other hand, government consumption turns out to be a much bigger contributor to total GDP—Government Final Consumption Expenditure is 10.2 percent of FY26 GDP at constant prices in the new series, compared to 8.9 percent under the old.

GVA growth under the new series for FY26, at constant prices, is estimated at 7.7 percent, against 7.3 percent in the old series. The pattern is the same as for GDP—much lower growth in FY24 compared to the old series, but higher growth in subsequent years.

Manufacturing’s share of GVA at constant prices for FY26 is pegged at 16.2 percent while it was 17.1 percent under the old series. Clearly, there is a problem with manufacturing’s share — It’s not just faulty measurement. The share of agriculture and allied activities, on the other hand, is now higher, at 17.7 percent of GVA, compared to 13.8 percent in the old series. Note that agriculture and allied sectors have a higher share in GVA than manufacturing in FY26, under the new series. That may be a good thing, considering that over two-fifths of the country’s population make a living from this sector, although it does indicate that the other, more productive sectors, aren’t growing as rapidly as thought earlier.

Among other big sources of employment for the masses, the share of construction is marginally lower, while that of ‘Trade, Hotels, Transport, Communication & Services related to Broadcasting, Storage’ is now only 14.3 percent, compared to 18.5 percent under the old series. That’s a big negative.

Among services, the share of the ‘Financial, Real Estate, IT, Professional Services & Ownership of Dwelling’ is now 26.1 percent, compared to 24.4 percent in the old series. This segment has gained significant market share and is a sign of the wealth of the professional classes.

The structure of the economy shows a change as a result of the new, updated data. The primary sector, which includes agriculture and allied sectors and mining and quarrying, now accounts for 19.7 percent of GVA at constant prices (for FY26). Under the old series, this sector accounted for 15.7 percent.

The share of the secondary sector, comprising manufacturing, electricity, gas, water supply and other utilities and construction, now has a share of 27.6 percent, down from 28.5 percent. And the tertiary sector, which includes all the services, now has a share of 52.6 percent, compared with 55.8 percent under the old series. The primary sector has gained at the expense of the other two — This is not taken as a sign of progress, but at least it uncovers the truth.

Yet, the broader narrative remains encouraging. Real GDP growth of 7.6 percent for FY26, backed by a strong Q3 print of 7.8 percent, suggests that the Indian economy is holding its momentum well.

What drove GVA growth in FY26? The contribution of the ‘Financial, Real Estate, IT, Professional Services & Ownership of Dwelling’ sector is almost a third, at 32.8 percent. Manufacturing followed, contributing almost a quarter of the growth, at 23.5 percent. ‘Trade, Hotels, Transport, Communication & Services related to Broadcasting, Storage’ contributed 18.5 percent, while construction’s share was 8.4 percent. Agriculture and allied sectors contributed a mere 5.8 percent to GVA growth in FY26 -- a stark reminder that a sector employing more than two-fifths of the population remains a marginal driver of economic expansion.

The manufacturing recovery, flagged in the Q3 corporate results, has shown up in the data as expected.

In the final analysis, the new GDP series is quite revealing. The economy is slightly smaller, investment weaker, and manufacturing’s footprint is narrower. The elevated role of government consumption is a double-edged signal: It has helped sustain growth, but it also raises questions about whether private demand and private capital are pulling their weight. The stronger-than-expected showing of agriculture is welcome, but a sector contributing only 5.8 percent to GVA growth despite employing more than two-fifths of the population is a reminder of how much productivity ground remains to be covered. Ultimately, the revision is not just a statistical exercise — It is a more honest map of where India stands. That should make for better policy.

Cheers,

Manas Chakravarty

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