India's Ministry of Statistics and Programme Implementation (MoSPI) has issued a detailed clarification regarding the nation's robust 7.8% Gross Domestic Product (GDP) growth recorded in the first quarter of fiscal year 2026-27 (April-June).
The ministry addressed concerns raised by economists and political figures, asserting that the reported figures are not the result of a "mechanical boost" but rather reflect rigorous methodological adjustments, updated data, and the incorporation of newer economic indicators. MoSPI emphasized that these revisions are standard practice and not an attempt to artificially inflate growth statistics.
Understanding the Manufacturing Sector's Negative Deflator
One key query focused on how the manufacturing sector could register a negative implicit Gross Value Added (GVA) deflator of 1.5%, despite observed increases in both output and input prices. MoSPI explained that the implicit GVA deflator, derived using the double-deflation method, should not be confused with the direct prices of manufactured goods or inputs.
Under this method, real GVA is calculated by subtracting real intermediate consumption from real output. If input prices rise at a faster rate than output prices, the nominal GVA can grow more slowly than the real GVA. This dynamic can lead to a negative implicit GVA deflator, even when both categories experience price increases. For Q1 FY26-27, manufacturing nominal GVA grew 7.7% while real GVA grew 9.2%, resulting in the reported negative deflator.
The ministry also referenced OECD research, noting that countries employing double deflation can experience volatile or negative manufacturing deflators, particularly during periods of global energy and raw material price shocks, which was a factor in textiles, basic metals, and rubber products.
Revisions to Previous Year's GDP Estimates
MoSPI also refuted claims that the previous year's current-price GDP was reduced to make the current year's growth appear more favorable. The ministry clarified that the adjustments were a consequence of successive revisions to the GDP series, particularly the transition to a new base year.
The initial Q1 FY25-26 GDP estimate was released under the older 2011-12 base-year series. However, with the introduction of the new GDP series using 2022-23 as the base year in February 2026, estimates were naturally revised. Subsequent updates incorporated new data from the Index of Industrial Production (IIP) and the Producer Price Index (PPI). MoSPI stressed that figures from different base-year series cannot be directly compared; the relevant comparison must be made within the same methodological framework.
Why GDP Deflator Differs from CPI and WPI
The ministry further addressed the divergence between the implied GDP inflation rate of 2.5% and consumer inflation (CPI) at 3.9%, or wholesale inflation (WPI) exceeding 9%. This difference, MoSPI explained, stems from the distinct scope of each measure.
- CPI tracks prices paid by households for a specific basket of goods and services.
- WPI focuses on bulk commodities, raw materials, and manufactured goods at the wholesale level, excluding services.
- The GDP deflator, conversely, is a comprehensive measure derived from the ratio of GDP at current prices to GDP at constant prices, encompassing the entire economy—including government spending, corporate investment, exports, and a wide array of financial and non-financial services.
Consequently, high raw-material prices, alongside lower inflation in certain service sectors, can exert downward pressure on the overall GDP deflator, even when consumer or wholesale inflation rates are higher.
Mining Sector's Divergent Growth
MoSPI also shed light on the significant disparity between nominal and real GVA growth in the mining and quarrying sector. While real GVA contracted by -2.4% in Q1, consistent with the Index of Industrial Production (IIP) for mining, nominal GVA surged by 22.3%.
This substantial gap was primarily attributed to a sharp increase in mineral prices during the quarter. Prices for crude petroleum and natural gas saw significant jumps (e.g., 69.5% in April), as did metal ores (e.g., 27.6% in April), driving up the nominal value despite a decline in real output.
Provisional Estimates and Future Revisions
Finally, MoSPI cautioned that the Q1 FY26-27 GDP estimates are provisional and subject to revision as more comprehensive data becomes available. The ministry clarified that statistical discrepancies between production and expenditure-based GDP estimates are balancing items, and their movement alone does not indicate an over or understatement of GDP.
These discrepancies are expected to diminish significantly or disappear in final estimates, as observed in previous fiscal years, underscoring the iterative nature of economic data compilation.