Govt Has Still Not Explained Last Year's Rs 6 Lakh Crore Fall in First-Quarter GDP

Recently released GDP growth figures for 2026-27 have drawn criticism, mainly because of a significant downward revision of the estimates fir the first quarter of 2025-26. In response, the Union Ministry of Statistics and Programme Implementation (MoSPI) has sought to defend its numbers, mainly on two counts.

First, the MoSPI argues that the revision in the 2025-26 first-quarter (April to July) estimates was due to change in the base year and, second, that it happened due to the adoption of double deflation for computing real value added – the sum of total output minus the inflation-adjusted value of intermediate goods.

Change of base year

The nominal GDP estimates – GDP not accounting for inflation – for the first quarter of 2025-26 was Rs 86.05 lakh crore under 2011-12 base year series, which stands reduced to Rs 80 lakh crore in the updated 2022-23 series.

This downward revision is attributed to incorporation of improved data sources, methodology and updating of indicators. It has also been correctly emphasised that GDP numbers from different base years cannot be compared.

There have been revisions in the annual estimates of nominal GDP for three other previous financial years – 2022, 2023 and 2024. These resulted in the reduction of the size of GDP by 2.9%, 3.8% and 3.8%, respectively, as per the 2022-23 base year. Considering this, the reduction in the 2025-26 first quarter, by 7%, seems unusually high.

If the pattern of revision in the first quarter of the previous financial year had been similar to that of the previous three years, the real growth in April-June 2026-27 would have been in the vicinity of 5%.

Also read: Ex-IAS Khemka Finds Govt Answer to GDP Revisions 'Unsatisfactory', Says More Transparency Needed

In fact, the same issue is likely to recur when the second quarter results for the current financial year are released in November, because last year’s estimates for July-September 2025-26 have also been reduced by 6.1% under the 2022-23 series.

Such a steep reduction in the GDP deserves a detailed explanation by MoSPI.

What is deflation?

The prices of various products in the economy keep changing, and hence, the sum total of nominal values of final products does not measure the true changes in the production cost over a period of time. So, real values have to be estimated by dividing the nominal values by relevant price indices. This is called deflation.

When the output and input values are deflated by their separate indices, it is called double deflation.

Understanding double deflation

In the April-June of 2026-27 (the current year), the Wholesale Price Index (WPI) inflation in the manufacturing sector was 7.3%. However, the real GVA growth was 9.2% -- higher than the 7.7% nominal growth. This is due to the adoption of double deflation. This is feasible only when the prices of inputs have increased faster than that of the output.

We explain the result of double deflation by computing GDP using single deflation (See table below), notwithstanding that actual deflation is applied at the sub-sector or item level. From this gap, it is clear that these are altogether different scales and not comparable at all.

Growth in 2026-27 (Q1) Manufacturing GVA (rupees crore)  by single deflation

For estimating GDP growth using double deflation, Input Producer Price Index and Output Price Index are used by MoSPI. While there is no dispute about Output Price Index, a trial Input Price Index is being released  by the Office of Economic Advisor, Department of Promotion of Industry and Internal Trade (DPIIT), Ministry of Commerce and Industry, for March 2026 onwards only.

Also read: How the Mystery of GDP Growth in a Crisis is Resolved When One Looks at the Methodology

As late as August 14, 2026, the government had invited feedback about this (experimental) Input Producer Price Index to examine quality of data. Its details are not in public domain, so we do not know how rigorous it is.

Conclusion

MoSPI must consider releasing the complete data of the experimental Input Producer Price Index it is using for double deflation in the new series. The methodology used by MoSPI to arrive at double deflation will clarify a lot of misunderstanding about the data of GDP growth.

Lastly, MoSPI is correct in pointing out that real GDP numbers as per base year 2022-23 are not comparable to the same figures from the old series, using 2011-12 as the base year.

Sanjay Kumar and  N.K. Sharma retired as Additional Director General and Director General, respectively, from the Ministry of Statistics and Programme Implementation. Siraj Hussain is former Union Agriculture Secretary. Views expressed are personal.

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