Former Official Questions Reported Growth Rate of Indian GDP

Former finance secretary Subhash Chandra Garg recently spoke, in a widely watched video , of the distress among the wage-earning class, whose incomes do not seem to have grown in real terms over the years. What’s more, eight to nine crore youth are out of the employment market. Therefore, there is a need to investigate whether the gross domestic product (GDP) is actually growing at the rate that is being officially claimed. In his interview with M. K. Venu, Garg broke down the real picture. The full text of the interview, transcribed by Ramsha Sartaj, an editorial intern at The Wire, follows. M. K. Venu: Hello and welcome to this episode of The Wire MKV 360. Today we will discuss something that has been hotly debated over the last 48 hours: is India indeed the highest-growth economy in the world? The background is this: we had quarterly GDP data for the first quarter, April to June 2026-27, released a couple of days ago. The GDP data for that first quarter turned out to be 7.8%, which created a lot of excitement within the government. Prime Minister Modi went on Instagram, mind you, Instagram, and said these were good tidings for India, and so on. However, the critics of the government, or the critics of the way the economy is being run, not just critics, even erstwhile supporters who have now turned critics, were not satisfied with the explanation that came after the GDP growth figures were released. The explanation was that India had turned the corner, that India had become resilient. Many experts pointed to a deeper question: what is the purpose of being the fastest-growing economy in the world? Even assuming you agree with the methodology and the GDP calculation of 7.8%, the purpose ought to be that people earn more income. It should translate into broader income growth in the economy, broader savings growth and broader consumption growth. The fact is, I am also in the same camp. I agree with those who say that 7.8% GDP growth is not reflected in the incomes of people at the bottom, say, the bottom 75-80% of the population, whose real incomes have not grown in the last six or seven years. This is shown by the Periodic Labour Force Survey, or PLFS, and other metrics indicating that people are in distress. India’s savings pool has been shrinking and, according to the RBI, is at a 45-year low. When savings are this low, household debt, conversely, is at its peak. So people are borrowing in order to consume. Now, to understand the significance of this GDP growth data, we have with us Mr Subhash Garg, a former finance secretary. Having served in government and having been a prominent policymaker in the Modi government until 2019, he is well placed to explain and offer his perspective on these growth figures. He is also the author of several books drawn from his experience, books we have discussed and written about on The Wire. Welcome to this discussion, Mr Subhash Garg. Subhash Garg: Venu, an initial remark: I am not in any camp, and I am not a critic per se. I simply try to assess everything objectively. You said you are in one camp, that is your prerogative, but I always try to be as objective as possible. M. K. Venu: No, Mr Garg, what I meant was that I was honestly placing myself in the camp that believes GDP growth data is not translating into broader well-being. That is what I was saying. Now, I would like you to explain how you view these growth figures. I have heard you argue on other channels that the numbers could also be something of a statistical illusion, a view shared by several other economists. I mean economists who work with major banks in Mumbai. Could you tell us how you look at it? Subhash Garg: I think this story is fairly well known by now, and it would have been better to move straight into questions. But let me summarise briefly. The GDP growth in real terms was 7.8%; in nominal terms, 10.3%. That is what the Q1 data released on 31st August indicated. As we all know, GDP is actually calculated in current prices first. You take corporate balance sheets, government data, banking data, and other information, all in current prices, and calculate the current, or nominal, GDP. Thereafter, you apply an inflation deflator to arrive at the real GDP. In other words, real GDP is not calculated directly; that is the point I would like your viewers to understand. This year, the claim of 7.8% real GDP growth, based on an underlying nominal GDP growth of 10.3%, implying a deflator, or inflation element, of about 2.5%, needs closer scrutiny. To understand the reality of these numbers, you have to relate them to the previous year’s GDP, both current and real. If you look at last year’s first-quarter GDP, the government’s figure released last year on 30th August was Rs 86 lakh crore. This has now been revised down to Rs 80 lakh crore, a downward revision of six lakh crore for last year’s first quarter. So we have Rs 80 lakh crore last year against Rs 88 lakh crore this year, which gives you the 10.3% growth figure. But that 10.3% growth must be examined in light of the real question: was last year’s nominal GDP actually Rs 86 lakh crore, or Rs 80 lakh crore? That is the critical question. In my analysis, I assumed that if last year’s nominal GDP was indeed Rs 86 lakh crore, the growth in current prices comes to only 2.6%, not 10.3%. If you then apply the 2.5% inflation factor, real GDP growth for the first quarter comes out to close to zero. That is the central basis of my argument. M. K. Venu: So, Mr Garg, you are correct in your description of how last year’s first-quarter base was revised. Now, some economists argue that because last year’s first-quarter base was reduced from Rs 86 lakh crore to Rs 80 lakh crore, it logically follows that the CSO, or the statisticians, must have increased the GDP stock for the subsequent quarters of last year, the second, third, and fourth, since the annual average could not have changed.