India’s GDP Numbers Look Good—Too Good To Trust

India’s latest GDP figures made headlines for the right reasons on the surface. 

Growth in the January–March quarter came in at 7.4% in real terms, while nominal GDP rose 10.8%. That helped lift the full-year numbers to 6.5% in real terms and 9.8% in nominal terms. 

Even gross value added at 6.8% outpaced the annual average. But a closer look reveals that the headline strength conceals more than it reveals.

Much of the apparent strength rests on favourable statistical revisions, heavy public expenditure and lower subsidies. Meanwhile, the core drivers of any sustainable recovery, household consumption and private capital formation, remain weak.

Start with the money supply. In most economies, nominal GDP growth and the broad money supply tend to move in tandem. In India’s case, the historical elasticity is around 1.3. So, the 10.8% nominal GDP rise in the quarter should have been accompanied by money supply growth of around 14%. Instead, M3 rose just 9.6%. If one were to rework the numbers with elasticity intact, nominal GDP would have grown closer to 7.5%, translating to a real growth rate of only 4.1%.

Private sector numbers tell a similar story. Sales of non-financial companies rose just 4.7%, sharply lower than nominal GDP. And personal final consumption expenditure, which was supposed to rise 10% in real terms, was finally reported at just 6%.

So, how did the full-year Personal Final Consumption Expenditure still show up as 7.2%? Because the estimates for earlier quarters were quietly revised up. That looks convenient rather than convincing. 

Consumer companies reported volume growth of just 2–3%, while surveys show continued downtrading and rural fragility. Kantar data show rural volumes grew only 2.7% in the quarter, compared to 4.4% in urban areas. RBI’s own survey shows muted income gains, especially in rural households. Real rural wages barely rose 2% year on year in March 2025.

Austerity Bites
The government has tightened the purse strings on consumption. Real government consumption fell 1.8% in January–March, dragging the full-year average to just 2.3%. Net of interest payments, revenue expenditure shrank 6.2% in the quarter. That, along with a 40% drop in subsidies, helped shrink the fiscal deficit by 1.2 percentage points in the quarter.

Capex, meanwhile, surged. Government capital expenditure, excluding loans, jumped 44% in January–March. That drove a 9.4% increase in gross fixed capital formation, a seven-quarter high. Yet private investment sentiment remains poor. 

The government’s own survey suggests private capex could drop 25% in 2025–26. CMIE data show private project completions fell 40% in 2024–25, the steepest decline since 2006–07.

India’s trade numbers also suggest a deeper slowdown. While the lower current account deficit may have flattered the GDP identity, total trade–exports plus imports–contracted 4.3% in the quarter. Imports fell by 12.7% while exports rose just 3.9%, signalling weak demand at home and abroad.

From the output side, GVA was again flattered by sectors supported by public money. Construction grew 10.8%, and public administration services rose 8.7%. Manufacturing grew just 4.8%, once again trailing agriculture, which posted 5.4% growth, though even that was down from previous estimates.

Inflated Optics
The broader recovery narrative remains overly reliant on government spending. 

Consumption is patchy, private investment is anaemic, and job creation remains unconvincing. Retail credit is slowing, and subsidy cuts are weighing on demand.

Going into 2025–26, the risks are rising. 

A recent spike in global trade was likely driven by panic buying ahead of expected tariffs from the United States. With stagflation risks looming there, spillover effects are likely. Meanwhile, domestic demand is constrained by subdued incomes and weak employment creation.

The Reserve Bank of India has started loosening both monetary and regulatory levers. But a durable recovery needs more than liquidity, it needs income. And real income gains are elusive. The low inflation that supports purchasing power is itself a symptom of demand weakness.

Unless employment in productive sectors revives meaningfully, the disconnect between the economy on paper and the economy on the ground will persist. GDP figures may continue to impress. The reality they obscure is less flattering.