Reuters reported on September 3 that India released data on August 31 showing that its GDP increased by 7.8% in the April to June quarter, exceeding expectations. Indian Prime Minister Narendra Modi posted on the X platform: "The predictions of those who were pessimistic were wrong—India is once again experiencing rapid development..." However, this data has sparked doubts from former government officials and a former central bank governor, who believe that the growth rate may be exaggerated.
Former senior official of the Indian Ministry of Finance, Subash Chandra Galghe, told Indian media that the increase in economic growth rate is due to the government's reduction of the GDP figures for the previous year. This figure serves as the benchmark for this year's year-on-year comparison.
Former Governor of the Reserve Bank of India, Raghuram Rajan, questioned why the impressive performance of GDP data was not reflected in positive outcomes such as job creation, domestic investment, and inflows of foreign capital.
Some civil economists also question the deflator index. The deflator index is used to remove the inflation factor from nominal GDP, in order to obtain the real growth rate. They believe that this indicator understates the level of inflation compared to other price indicators.
Indian opposition parties have seized this controversy that initially originated on social media to criticize the Modi government. A senior member of the Congress party called the 7.8% growth rate a “statistical trick”.
In July this year, a wave of youth protests forced the resignation of the Minister of Education. The protests reflected widespread dissatisfaction among the public regarding the lack of job opportunities and corruption in the education sector. Since then, the Modi government has been under public pressure.
The Indian statistical department held a press conference on the evening of September 2 to refute the doubts. A senior official from the statistical department defended the adjustment of the GDP accounting method, stating that the statistical system reform implemented in February was based on extensive consultation with stakeholders.
The government stated that the reform aims to reflect the economic reality more accurately by using a new data series. The nominal GDP for the quarter from April to June 2025 will be lowered from 86.05 trillion rupees under the old statistical methodology to 80 trillion rupees (equivalent to 5.7 trillion yuan).
Reuters analysis indicates that if the GDP figures released on August 31 are calculated using the old methodology, the nominal growth rate would be only 2.6%, while the figure announced by the government is 10.3%. However, the Indian government states that comparing the two sets of data directly does not result in comparable results.
The reforms in February not only updated the base year after more than ten years, but also "optimized" the data sources and adjusted the range of goods and services included in the statistics.
Indian statistical department officials told media that the quarterly data over the past three years has been adjusted upwards as well as downwards, and the overall annual adjustments were relatively limited.
In terms of price adjustments, India’s GDP deflator for the April-June quarter was 2.3%, which is far lower than the retail inflation of over 4% and the wholesale inflation of over 9%.
The government explained that the new statistical system adopts the internationally accepted dual adjustment method, adjusting prices for both output values and input costs separately. The statistical secretary stated that the new GDP series uses a more granular producer price index. The adjustment factors for inputs and outputs have been expanded from approximately 180 to over 300.
Economists have different opinions regarding the deflator index.
The Indian Industrial Credit Investment Securities Corporation, based in Mumbai, stated that the adjusted index is lower than wholesale and consumer inflation, reflecting the reality that the prices of inputs are rising faster than those of outputs.
However, economists at Societe Generale Bank suggested that a low deflation index raises questions about the true intensity of economic activities in the real world.
According to the British Broadcasting Corporation (BBC), Sajid Chini, Chief Economist at JPMorgan India, stated that under the impetus of massive fiscal stimuli, India has indeed shown signs of 'cyclical economic recovery' over the past six months. The fiscal stimulus measures included direct tax cuts in February last year, a reduction in consumption taxes in September, and a cumulative interest rate cut of about 1.5 percentage points since the beginning of 2025.
The crucial question lies in whether India can maintain its economic recovery amidst the turmoil of the Middle East. Chinooy stated this on a news program.
Affected by both strong global demand and weakening domestic currency exchange rates, Indian exports still increased significantly by 12%, despite the uncertainty of tariff policies. Economists believe that a 15% depreciation of the Indian rupee against the US dollar helps businesses improve their export competitiveness and stimulates demand for Indian goods in overseas markets.
Meanwhile, Indian companies are investing more in the construction of new factories and plant buildings. As a key indicator of total domestic public and private investment, India's gross fixed capital formation increased by nearly 12% in the first three months of this year.
India's state-owned Baroda Bank chief economist Madan Sabnavis told the BBC: "Unofficial data also shows that corporate investment willingness has increased in recent months, with investment announcements concentrated in industries such as data centers, renewable energy, and metals."
"Of course, private investment has not yet been fully implemented, but these are undoubtedly signs of a recovery in investment."
According to BBC analysis, due to poor monsoon weather, food inflation in India is on the rise. As of August 27 this year, the cumulative rainfall was 13% lower than the long-term average.
Even though India has made greater preparations than before, it still carries clear risks for agricultural and rural demand as well as food price inflation.
In India, prices of foods such as onions have risen nationwide. Consequently, the government has to send special trains to major cities to transport supplies and stabilize supply and demand. In May, India's retail inflation reached a 15-month high of 3.9%. Due to weak monsoons, some economists predict that inflation will continue to rise, potentially hitting the upper limit of the central bank's tolerance range.
Facing a situation where high growth is coupled with high inflation, most securities firms predict that the Indian central bank will raise interest rates. At the same time, the global economy is expected to weaken, and Indian export demand may decline accordingly. Additionally, geopolitical turmoil has increased the costs of raw materials and energy.
The BBC believes that, due to a combination of factors, whether the high growth figures in India are true or not, this period of growth and prosperity may be approaching its peak.
