New Delhi: Earlier this year, the government issued a much-awaited update to the methods by which it measures national income and gross domestic product (GDP).
According to the government, key reforms to the way GDP is calculated “include revising the base years of GDP and price indices, strengthening the measurement of the informal and services sectors, improving labour market statistics, adopting advanced survey methods and technology, and enhancing transparency…”
Based on the new methodology, India’s GDP grew 7.2%, 7.1% and 7.6% in real (inflation-adjusted) terms in FY24, FY25, and FY26, respectively, compared to the 9.2%, 6.5% and 7.4% growth rates last estimated using the old methodology. In absolute terms, GDP is now lower than previously pegged: at current prices (not adjusted for inflation), India added ₹345.47 trillion in economic output in 2025-26, not ₹357.14 trillion as believed using the old technique. The three years before this, the only ones for which data is available based on both methods, also saw GDP shrink by 2.9-3.8%.
The details seem arcane and of interest only to statisticians. But the changes gain credence as they come after almost 10 years of sharp criticism by researchers and academics of the way the government calculated such statistics, and of the impression that those calculations gave of the health of the Indian economy as a whole. Bluntly put, the criticism was that the way GDP was calculated portrayed as being healthier, and faster growing, than it actually was.
A recent paper by researchers Abhishek Anand, Josh Felman and Arvind Subramanian (the last being the chief economic adviser to the government from October 2014 to June 2018) attempted to build on earlier work by other researchers and recalculate GDP to account for some of the sharper criticisms.
The revised numbers worked out by them are stark. Their corrections estimate the level of 2025 GDP (after adjusting for inflation) to be overstated by over one-fifths and the level of consumption by nearly one-thirds.
Officially, India’s so-called ‘gross value added’ (an indicator of economic output from the production side) between 2011 and 2023 grew at an annual average rate of 5.9% in real terms. With the corrections, that average rate drops to 4-4.4% per year, according to Anand et al.
The paper drew sharp responses from the government. Writing in The Indian Express, V. Anantha Nageswaran, the current chief economic adviser, and Saurabh Garg, the secretary of the ministry responsible for producing the GDP estimates, said the revisions to GDP based on the new methodology produced “substantially more modest adjustment than the paper’s estimates imply. If the true overestimation were really 22% of GDP, the official revision would look nothing like it does.”
This is a high-stakes debate.
Given as a statistic, revisions to it change the picture of how the Indian economy grew over the last two decades since the 2008 financial crisis—for example, they change the picture of the fiscal deficit or the current account deficit numbers, which are normally expressed as percentages of GDP.
In recent years, India has acquired the reputation of being the fastest-growing major economy. While the methodology changes are unlikely to challenge that tag, they may still have serious implications for how the narrative of the Indian growth story is told over the last two decades, given the use of absolute GDP numbers to claim improvements in global rankings.
Different tracks
In January 2015, the government introduced changes to GDP to update the so-called base year and revise how different components of that number are calculated. Such changes do need to be made from time to time. Those changes updated the base year to 2011-12. They also revised how the size of the private corporate sector was calculated, and how GDP numbers were revised to account for inflation.
Soon researchers began to note puzzling discrepancies. If GDP numbers accurately reflect economic reality, movements in GDP should broadly track movements in other economic statistics such as taxes and growth in bank loans. An economy growing strongly should not only see fast overall GDP growth but also a rise in tax revenues that typically track company and individual incomes. Bank loans should grow at a fast clip, as companies grow their balance sheets to add capacity etc.
Conversely, if growth in tax revenues or bank loans is weak, but GDP continues to rise at a rapid pace, that’s a puzzle. And this is exactly what happened. Following the revisions to GDP numbers starting from 2011-12, the relation between GDP growth statistics and other economic numbers started to go awry. “According to , the economy has enjoyed steady, rapid ascent over the past two decades,” say Anand, Felman and Subramanian. “But the macro indicators tell a very different story…almost every indicator posted double‐digit growth (annual average) in the first period and collapsed in the second.”
Between the two periods 2004-2011 and 2012-24, the average growth rate of GDP showed only a slight decline—from 6.9% in 2004-2011 to 6.1% in 2012-24. But between those two periods, as chart 1 shows, the growth rate of the Index of Industrial Production for capital goods declined from an average of 16.1% to 2.9%, the growth rate of bank credit declined from an average of 15.6% to 5.6% per year, and the growth rate of direct tax revenues declined by six percentage points.
Select leading companies whose growth is closely linked with the state of the economy also signalled a divergence. On 9 May 2024, Amit Syngle, managing director (MD) and chief executive officer (CEO) of Asian Paints, in a routine investor conference on corporate results, said: “The GDP correlation [with the growth of the paint industry] has really gone for a toss, in the current year…even if you look at the core sectors, whether it is steel, cement, so on and so forth, nowhere it is correlating with the kind of possibly overall GDP growth in terms of what we are kind of talking of.”
In an era where the economy was hit by multiple shocks even before the covid pandemic—for instance, demonetisation and a migration to the goods and services tax (GST)—the claim that GDP could grow relatively uninterrupted strained credulity for several seasoned observers.
In 2019, in an article on the GDP estimation problem, researchers R Nagaraj, Amey Sapre and Rajeshwari Sengupta pointed out: “…many private and international financial firms have apparently resorted to their own devices to find proxies for GDP. Some are apparently using World Bank’s night lights data as a measure of economic activity, or high-frequency industry- and sector-specific data, all of which, at best, are second-best solutions.”
In an email response to Mint, the ministry of statistics and programme implementation (Mospi) said this “perceived disconnect” after 2011-12 largely stemmed from methodological and structural changes in GDP estimation rather than an actual inconsistency, and changes in indicator relevance over time. “Indicators like IIP continue to measure change in physical production only in a limited set of sectors, and do not adequately capture structural changes in India’s manufacturing sector with its base year of 2011-12,” it said. “Additionally, tax collections are influenced by policy changes and compliance measures, making them inadequate proxies for economic activity. For instance, the use of direct tax growth ignores major tax policy rationalisation, most notably the corporate tax rate reduction introduced in 2019. The evolving structure of the economy, greater formalization, and improved data coverage have further contributed to divergence with traditional indicators.”
“The improved capture of faster-growing segments of the economy suggests that the measured growth trajectory is likely to be structurally higher under the new series,” Alexandra Hermann, lead economist at Oxford Economics, United Kingdom, told Reuters.
‘Informal’ imbroglio
Another serious disconnect was the measurement of the so-called informal sector—the vast hinterland of commercial India comprising family businesses, proprietorships, and tiny .
The output of this sector, which accounts for around 44% of gross valued added, is extraordinarily difficult to measure, given its size and diversity. Over the past decade, it has also been hit by three events much harder than the organised sector: demonetisation in 2016, the introduction of GST in 2017, and the covid pandemic from 2020 to 2022.
The government has periodically conducted surveys of the size of the sector. Chart 2 shows total earnings of workers in the unorganised sector for 2023-24, compared with 2015-16, in real terms, based on surveys conducted by the government. Over a period of eight years, average income growth per year was only 1.3%, after adjusting for inflation, in the overall informal sector. Again, the disconnect between overall GDP growth, and the health of a critically large component of the economy was stark.
Measuring the size of the informal sector was a critical issue. Anand and his co-authors made the point that the older method of GDP calculation used the size of the corporate sector, and its growth, as a proxy for the informal sector. Till the early-2010s, this practice was alright, they say. But post-that, they add, this proxy breaks down because these shocks hurt the informal sector more. They also critique the way the formal economy is measured, a point also made by other researchers.
Nageswaran and Garg, however, argue that a progressive amount of output of the private sector has been shifting from the informal sector to the formal corporate sector. So, the problem of measuring the output of the informal sector becomes less significant to GDP measurement. Yet, close to 90% of India’s workers are in the informal sector, which is something the GDP doesn’t really capture. If the informal sector is generating a much lower share of output due to formalisation, but continues to employ the vast bulk of the workforce in India, these workers will see lower growth rates of productivity and wages than those in the formal sector. Growth in real wages in the informal sector have been tapering for some years now.
In its email response, Mospi pointed to contradictions in the position taken by Subramanian, one of the authors of the paper, on the share of the informal sector.
It said that while the 2026 paper estimated the share of the informal sector at 44% of gross value added (GVA), the 2017-18 Economic Survey, whose lead author was Arvind Subramanian as the then chief economic advisor, estimated that formalisation was increasing and that firms within the GST net accounted for nearly 80% of total turnover. “The 2026 paper makes no attempt to reconcile its baseline assumption with the evidence its own author produced,” Mospi argued. “The omission is not peripheral: the informal sector mis-measurement component accounts for between 0.4 and 0.8 percentage points of the paper’s estimated annual overestimation.”
Bigger picture
Another issue is how the government calculates real GDP—the method it deploys to adjust raw output numbers (nominal GDP) for inflation. This is important because a company can post a sharply higher growth in revenue by raising prices, whereas the number of goods it sells may see only a modest uptick. Disentangling the effect of the price from the growth in physical sales is critical to understanding how the economy is actually growing.
Anand and others, in their paper, as well as other researchers, question the government approach of using wholesale prices to ‘deflate’ raw GDP. Firstly, wholesale prices apply only to the manufacturing sector, and do not track the services sector. Secondly, wholesale prices were heavily influenced, even over-influenced, by .
Starting 2014, oil prices declined sharply, and grew only moderately through the latter part of the previous decade. In fact, since 2011, annual wholesale price growth has actually averaged 2.2 percentage points lower than the estimate of the increase in consumer prices.
The authors argue that using retail prices to deflate raw GDP numbers was much more valid since it also tracks prices of services.
Mospi argues the Wholesale Price Index (WPI) is a better choice to deflate output in sectors like manufacturing, especially goods produced for industrial use (like steel and cement), as it aligns more closely with the valuation of output in national accounts. “In contrast, CPI reflects retail prices faced by consumers, including taxes, distribution margins, and services, making it unsuitable for deflating production-based aggregates,” it said in its email response to Mint. “As per the System of National Accounts (SNA) recommendation, a Producer Price Index (PPI) is appropriate deflator. India’s WPI is conceptually close to a PPI…in the absence of PPI, the use of WPI remains a pragmatic and conceptually consistent choice, supplemented in practice by a combination of price indices [including CPI and other sector-specific deflators] depending on the nature of the activity being measured.”
But outside all these arcane debates over statistical methods and databases lies a much bigger question: how does this change the narrative of the Indian growth story over the last two decades?
“Once these adjustments are made, it appears that the Indian economy did not grow at a stable rate over the past two decades but rather boomed during the early 2000s, then decelerated after the global financial crisis and subsequent domestic shocks,” Anand, Felman and Subramanian say.
Speaking to Reuters, Sujan Hajra, chief economist & executive director, Anand Rathi Group, said the headline GDP and GVA trajectories under the new series was not materially different from those under the old series. “That said, nominal GDP growth for the year continues to remain below 9%, implying that while real activity is robust, the nominal backdrop—crucial for revenue buoyancy and profit growth—is relatively contained.”
The recent revisions to were long awaited. It remains to be seen how they can be used to address some of the more serious structural issues facing the economy.
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