India’s economy grew by 7.8% in the April-June quarter, exceeding expectations and demonstrating resilience despite concerns that the Iran war and the resulting global uncertainty could affect economic activity. Government data released on Monday showed that GDP growth in the first quarter of 2026-27 remained robust even as the conflict disrupted global energy markets.
The growth rate was lower than the 8.6% recorded in the previous quarter but surpassed the Reserve Bank of India’s projection of 7% for the period. The strong performance also helped India retain its position as the world’s fastest-growing major economy, highlighting the strength of domestic demand despite elevated geopolitical risks.
Amid questions and speculation surrounding the GDP figures, the government has issued an FAQ explaining the methodology and credibility of the 7.8% growth recorded during the April-June quarter.
What has changed in the new GDP series?
The revised annual and quarterly GDP estimates released on August 31, 2026, use 2022-23 as the new base year. The series also incorporates a new Output Producer Price Index and Banking Services Price Index, both based on 2022-23, along with updated administrative data.
What does changing the base year mean?
The base year establishes the prices used as a reference for measuring economic growth. It is periodically updated to ensure GDP calculations reflect structural changes in the economy and that relative prices remain representative of prevailing economic conditions.
What is deflation in GDP calculations?
Deflation refers to removing the impact of price changes from a current-price, or nominal, figure to determine its constant-price, or real, value. In simple terms, it helps separate changes in the amount produced from changes caused by prices.
What is double deflation and why is it important for manufacturing?
Double deflation involves separately adjusting the prices of a manufacturing sector’s output and its intermediate inputs. Real Gross Value Added (GVA) is then calculated by subtracting real intermediate consumption from real output.
The approach is important because input prices and the prices of finished products do not necessarily rise or fall at the same pace.
How can manufacturing show -1.5% inflation when both output and input prices are rising?
A negative manufacturing GVA deflator does not indicate that manufacturing prices declined.
During Q1 2026-27, nominal manufacturing GVA increased by 7.7%, while real GVA rose by 9.2%. The gap between the two resulted in an implicit GVA deflator of -1.5%.
This occurred because input prices rose faster than output prices. Therefore, even though both sets of prices increased, their relative rates of growth resulted in a negative implicit GVA deflator.
Industries where input-price growth exceeded output-price growth included textiles and cotton ginning, basic metals, and rubber and plastic products.
Why did agriculture show positive inflation of 3.9%?
Agricultural GVA at constant prices is initially calculated using production estimates. Its current-price value is subsequently determined using the relevant Producer Price Index.
In Q1 2026-27, the output Producer Price Index for Agriculture, Forestry and Fishing increased by around 5%. Since agricultural nominal GVA is strongly influenced by output prices, the implied inflation rate remained positive at 3.9%.
Does double deflation affect household consumption (PFCE)?
No. Double deflation is applied on the production side to calculate industry-level GVA. Private Final Consumption Expenditure (PFCE), meanwhile, measures household spending on final goods and services and does not involve intermediate consumption that needs to be deducted.
For PFCE, constant-price estimates are prepared at the individual item or item-group level using suitable volume indicators. Current-price estimates are calculated using the relevant price indices.
Why is GDP inflation 2.5% when CPI was 3.9% and WPI was over 9%?
There is no inconsistency because the three measures capture different segments of the economy.
The Consumer Price Index (CPI) tracks price movements for a specific basket of goods and services consumed by households. The Wholesale Price Index (WPI) measures bulk commodities, raw materials and manufactured goods at the wholesale level, while excluding services.
The GDP deflator, by contrast, covers the entire economy. It includes government expenditure, investment, exports and financial and non-financial services such as banking, information technology and real estate. It is calculated using more than 300 individual price deflators.
As a result, the GDP deflator does not necessarily move in line with either CPI or WPI.
Was last year’s GDP revised down to make this year’s growth appear higher?
No. The revision to the Q1 2025-26 estimate reflects successive methodological and data-related updates to the GDP series. It was not a downward adjustment made to artificially boost the current year’s growth rate.
Quarterly GDP estimates are prepared using a benchmark-indicator approach, under which relevant high-frequency indicators help determine the movement of quarterly estimates.
Will the Q1 2026-27 GDP figures be revised?
Yes. The estimates can be revised as more comprehensive and updated data becomes available. The extent and direction of any revision will depend on changes in the underlying production- and expenditure-side estimates rather than on mechanically altering the statistical discrepancy.
At the final current-price stage, such discrepancies are expected to become negligible or disappear altogether, as was observed in FY2022-23 and FY2023-24.
