Why India's strong GDP growth is raising eyebrows

India's unexpectedly robust economic growth of 7.8% in the most recent quarter has ignited a debate among experts. The government's data revealed this surge, outpacing the 7.1% forecast by analysts. However, the world's fifth-largest economy's growth figure has raised eyebrows, with some questioning its authenticity. Subhash Chandra Garg, a former Finance Ministry bureaucrat, argued that the government's calculations were inflated, suggesting that the base used for comparison was adjusted.

Raghuram Rajan, the former head of the Reserve Bank of India, questioned why stronger outcomes in areas like job creation, domestic investment, and foreign portfolio inflows were not evident. Some private economists also expressed doubt about whether the deflator, used to strip out inflation from nominal GDP and show real growth, was understating inflation compared to other price indicators.

The opposition seized on this controversy to criticize Prime Minister Narendra Modi's government, with a top Congress party official dubbing the 7.8% growth figure "statistical gymnastics." In response, India's statistics ministry held a news conference to defend the government's numbers. A senior official claimed the methodology change was the result of extensive consultations and aimed to more accurately reflect economic conditions.

The changes, implemented in February, included a new data series that reduced the nominal value of GDP for April-June 2025. The government maintains that comparing the two figures isn't a straightforward apples-to-apples comparison, as the recent updates encompassed broader data refinements and a more granular Producer Price Index.

Despite the differing views on the deflator's accuracy and its implications, India's economic data aligns with other high-frequency indicators, suggesting a strong economy.