Revised GDP Data Suggests Three Consecutive Years of 7% Plus Growth

GDP Growth for FY26 Revises Upward to 7.6% in Real Terms and 8.6% in Nominal Terms

The revised GDP series for FY26 has shown a significant improvement in growth rates, with real GDP growth increasing to 7.6% and nominal GDP growth rising to 8.6%, compared to 7.4% and 8% in the previous series.

Key Drivers of the Revision

1. Broadened Data Collection: The revised series incorporates inputs from household consumption surveys, data from local bodies and state autonomous bodies, and more dynamic updating of rates in estimates of valuables. Additionally, the use of GST data for quarterly estimates, findings from the Annual Survey of Unincorporated Sector Enterprises (ASUSE), and data from the Periodic Labour Force Survey (PLFS) have been incorporated, bringing the data closer to real trends.
2. Revision of Base Year: The base year has been revised to 2022-23, which provides a more comparable and credible starting point, accounting for the post-pandemic shift in income, spending, and investment patterns.
3. Double Deflation: The manufacturing segment now uses double deflation, with input and output deflated separately, providing a more realistic picture of nominal versus real GDP.

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Key Takeaways

• The October-December quarter's robust performance of 7.8% (real) and 8.9% (nominal) is not a surprise, given the quarter's coinciding with the festive season and GST rate cut.
• The full-year growth is expected to show a shift in momentum, with aggregate growth being better in the new series compared to the old series.
• There are some nuances in the data, including:
  • Shift in share to investment from consumption
  • Slower growth for agriculture, electricity, and government spending
  • Decline in absolute value of nominal GDP to Rs 345.47 trillion in the new series for FY26 from Rs 357.13 trillion earlier
  • Revision in fiscal deficit as a percentage of GDP to 4.5% from 4.4%

Outlook

• While high-frequency indicators suggest that rural recovery remains intact, the urban side could be moderating.
• Structural tailwinds from trade deals should support the manufacturing sector, while domestic trade, travel, and financial services buoyancy should keep the services industry upbeat.
• The trend in real GDP across the last three years (7.2%, 7.3%, and 7.7%) suggests that a realistic strong growth is in place to accelerate to the next level of growth.

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