OPINION | Revised GDP shows three straight years of 7% plus growth, signalling underlying strength

The trend in real GDP across the last three years suggest that a realistic strong growth is in place to accelerate to the next level of growth.

GDP growth for FY26 brightens in the new series to 7.6% in real terms and 8.6% in nominal terms from 7.4% and 8% under the previous series. The February 2026 GDP print for Q3 FY26 7.8% (real) brings quite a dose of optimism. But before we get to the numbers let us examine what has changed in the underlying.

First, broadening the data collection. This revised GDP series takes inputs from household consumption surveys, data from local bodies and state autonomous bodies increase from 16 states to 20 states and more dynamic updating of rates in estimates of valuables.

More importantly use of GST data for quarterly estimates, findings from the Annual Survey of Unincorporated

Sector Enterprises (ASUSE available since 2021-22) for the incorporating the data from unorganised sector, Periodic Labour Force Survey (PLFS) results, use of VAHAN data are to be incorporated among others. This brings the data closer to the underlying real trends.

Second, revision of base year to 2022-23. Why is this important? Post pandemic, there has been a notable shift in income, spending and investment patterns with the proliferation of technology. Therefore, the shift in base year gives a more comparable and credible starting point ironing out the shocks and aftereffects of the pandemic.

Third, double deflation from single deflation for manufacturing segment wherein the input and output will be deflated separately. Also, the new series will incorporate about 500-600 items from new CPI and old WPI series in comparison to only 180 earlier which relied more on WPI than CPI. This will provide a more realistic picture of nominal versus real GDP. Real GDP is nominal GDP excluding inflation.

Earlier when single deflator was used, input inflation if not passed on to output distorted the real output thereby supressing growth. And when input prices are lower, the output tends to be elevated like recently real GDP is estimated at 7.4% and nominal GDP at 8% for FY26.

All the three factors put together gives us more realistic picture of the state of the economy which is critical at the juncture when dynamics of the world are undergoing transformation at a very fast pace. This will enable policy makers to make a better decision to support growth while at the same time counter shocks more effectively – both of which are likely to coexist.

Now coming to the what the data presents. October-December quarter’s robust performance of 7.8% (real) and 8.9% (nominal) is not a surprise as it was the quarter just after the GST rate cut and coinciding with the festive season the underlying data particularly from vehicle sales did reflect a strong rural and urban recovery. For the full year there is an expected shift in momentum wherein aggregate growth is better in the new series versus old. However, a few nuances here:

a) Shift in share to investment from consumption:There’s a decline in share of services with rising share of agriculture and manufacturing. In the expenditure side there is a shift to investment while share of private consumption declines. Within services too, the share of trade, transport and communication moderates while that of financial services and real estate increases.

b) Growth rates portray a slower growth for agriculture, electricity and government spending. 

c) Another important change is the decline in absolute value of nominal GDP to Rs 345.47 trillion in the new series for FY26 from Rs 357.13 trillion earlier.Across the years the nominal series is revised 3.8% lower (2023-2025) while FY26 is revised 3.35 lower. Notably, this will shift the debt-to-GDP ratio higher by 60-70 bps. For FY26, fiscal deficit as a percentage of GDP could be revised to 4.5% from 4.4% - a tactical rise.

While prospectively high frequency indicators suggest that rural recovery remains intact, the urban side could be moderating. Nevertheless, from the manufacturing front there are structural tailwinds from the trade deals. Domestic trade, travel and financial services buoyancy should keep services industry upbeat. While externalities will continue to play dampener now and then, structural levers are well in place. The trend in real GDP across the last three years 7.2%, 7.3% and 7.7% suggest that a realistic strong growth is in place to accelerate to the next level of growth.

(Anitha Rangan is Chief Economist, RBL Bank.)

Views are personal and do not represent the stand of this publication.