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Informist, Monday, Mar. 2, 2026

 

By Shubham Rana

 

NEW DELHI – India's first overhaul of its national accounts in over a decade has sprung a few shocks and surprises, but it underpinned that growth remains buoyant and is now more stable. While the new GDP data strengthens the growth outlook for the Indian economy, it has complicated the government's fiscal math.

 

The statistics ministry Friday released the new GDP series with 2022-23 (Apr-Mar) as the base year, replacing FY12. Data based on the new series showed that India's GDP grew faster than expected in the December quarter at 7.8%, driven by strong consumption on the back of cuts in the goods and services tax and festival season demand. Growth was also supported by manufacturing and services sectors.

 

The new GDP series — with a new base year, more data sources, and improved methodologies — addresses key criticisms of India's national accounts by the International Monetary Fund. The last time India overhauled its GDP series was in 2015 when the base year was changed to FY12 from FY05.

 

The economy is now expected to grow 7.6% in the current financial year, as per the government's second advance estimate based on the new GDP series. This is higher than the 7.4% projected by the first advance estimate released in January, which was based on data from the old series.

 

The new series showed a less volatile quarterly GDP growth in FY26. The economy is now seen growing 7.6% in each of the two halves of FY26, against the previous estimate where growth was seen slowing down in the second half of the year.

 

Volatility in GDP growth over the last two financial years has also reduced in the new series. The old GDP series data showed a 9.2% growth in FY24, which fell sharply to 6.5% in FY25. But in the new series, GDP expansion is more consistent with FY24 and FY25 growth at 7.2% and 7.1%, respectively.

 

Notably, average GDP growth was lower at 7.3?tween FY24 and FY26 in the new series as against 7.7% in the earlier series. "This shows that the underlying trend growth is around 7% with an upward bias. This validates what the Economic Survey also pointed out, that our potential GDP growth has gone up," Kanika Pasricha, chief economic adviser at Union Bank of India, said. According to the Economic Survey for FY26, India's medium-term growth potential is now closer to 7% than the previously estimated 6.5%.

 

"Preliminary indications are that growth forecasts for FY26 and FY27 should be revised upward," ANZ Banking Group said in a report. The government raised its GDP growth forecast for next year after the new data was released Friday, with Chief Economic Adviser V. Anantha Nageswaran saying GDP growth in FY27 is now seen around 7.0-7.4% under the new GDP series. The Economic Survey had projected FY27 GDP growth at 6.8-7.2%, which was based on data from the old series.

 

"Initial data reveal robust growth in both private consumption and investment, signalling a cyclical rebound in domestic demand, which is partly supported by recent policy accommodation," economists at ANZ said. "Excluding agriculture, production-side GDP growth was significantly supported by industry and services, with particularly strong gains in manufacturing providing resilience against possible external demand weakness."

 

The new GDP series includes data from new sources such as goods and services filings and e-Vahan. It also incorporates data on the informal sector based on new surveys. There are also several methodological improvements in the compilation of GDP estimates in the new series, such as the use of the double deflation method for the manufacturing sector and more granular use of WPI and CPI for deflation across the board. The new GDP has already shown a sharp fall in growth estimate for FY24 to 7.2% from 9.2%, and a upward revision for FY25 growth to 7.1% from 6.5% in the old series.

 

NOT SO NOMINAL ISSUES

 

The revamped GDP series showed that the Indian economy is smaller in nominal terms than previously projected. This, economists said, would have implications for the government's fiscal and debt ratios.

 

The size of India's GDP at current prices was estimated at INR 345.47 trillion in FY26, as per the new series, nearly 3% lower than INR 357.14 trillion previously estimated. According to data from the new series, nominal GDP in absolute terms was also lower in FY24 and FY23 as compared to the estimates based on the old series.

 

Lower nominal GDP for the current year, despite stronger growth, pushes up fiscal deficits for FY26 and FY27 to around 4.5%. The Budget has pegged the fiscal deficit for FY26 at 4.4% of GDP and 4.3% for FY27. The government's fiscal deficit was INR 9.814 trillion in Apr-Jan, accounting for 63% of the revised Budget estimate of INR 15.585 trillion for FY26.

 

Nageswaran Friday said nominal GDP growth is now expected to be close to 11% in FY27. This would be shy of the near 14% growth in nominal GDP required to meet the fiscal deficit target of 4.3% of GDP for next year. Nominal GDP is seen growing 8.6% in FY26, slower than 9.7% in FY25.

 

A near 14% nominal GDP appears difficult "even if we are to assume that the CEA's assertion that real growth for FY27 would now be 7-7.4% were to hold true," SBI Capital Markets said in a report. "Clearly, the government will have to recalibrate its borrowing to achieve fiscal aims."

 

The government will need to find additional resources to stick to the 4.3% fiscal deficit target, but it should not be a big problem, Abhishek Upadhyay, senior economist at ICICI Securities Primary Dealership said.

 

The bigger issue may be the government's higher debt-to-GDP ratio, which is now seen at over 58% in FY26, higher than 56.1% pegged in the Budget. "That brings in doubt whether government will be able to hit the debt-to-GDP of 50% by FY31 that was anyways looming a bit steep given the consolidation pegged for first year and as we approach latter half of political cycle," Upadhyay said. "The medium-term target is likely to shift a little higher at least to 51-52%, or the end date to achieve the target may shift out."

 

A smaller GDP in nominal terms means India will now take longer to overtake Japan and Germany in dollar nominal GDP terms, Shilan Shah, deputy chief emerging markets economist, Capital Economics, said in a note. Nageswaran maintained that the Indian economy will cross the $4-trillion mark comfortably in FY27, as was expected before the release of the new GDP series.

 

"In terms of global GDP rankings, on the former nominal (US$) GDP numbers India was on course to overtake Japan to become the world's fourth-largest economy in 2027," Shah said in a note. "The downward revision to India's nominal GDP means that (this) may now take a bit longer. Even so, stronger demographic and productivity prospects mean India is still destined to overtake Japan (and Germany too) by the end of the decade and then pull away from both economies thereafter."

 

After the release of the new GDP data, the government may have some work to do on its fiscal maths but there are no concerns for the Reserve Bank of India. The central bank is likely to take comfort from the strong growth which could push the Monetary Policy Committee to keep the repo rate at 5.25% in the near future.  End

 

Edited by Tanima Banerjee

 

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