India's Economy Expands 7.8% in Q3 FY26, Outpacing Global Peers
India has reaffirmed its position as the world's fastest-growing major economy, posting a robust GDP growth rate of 7.8% in the third quarter of the financial year 2025-2026. This performance exceeded market expectations and occurred despite the full implementation of the Donald Trump administration's 50% tariffs during this period. The government released the inaugural GDP data under a newly revised series on Friday, aiming to provide a more precise depiction of economic expansion.
Revised Growth Projections and Methodological Overhaul
The growth forecast for the entire fiscal year 2025-26 has been upgraded to 7.6%, reflecting increased optimism. This revision follows significant enhancements in GDP calculation methodologies, designed to address previous criticisms, including those from the International Monetary Fund (IMF), which had categorized India's national accounts data as 'C' due to an outdated base year.
Key changes in the new GDP series include:
- Updating the base year from 2011-12 to 2022-23 to better reflect current price levels and economic structures.
- Adjusting the relative weights of output sectors and demand segments for improved accuracy.
- Incorporating additional and more disaggregated data sources, such as GST information, to enhance coverage.
- Implementing refined methods to scale up economic activities in the informal sector and corporate entities.
Expert Insights on Economic Health and New Series
Sujan Hajra, Chief Economist and Executive Director at Anand Rathi Group, commented, "India's Q3 FY26 GDP and FY26 Second Advance Estimates surpassed 7.5%, slightly above expectations. The trends remain broadly consistent across both the new and old series. While nominal growth stays below 9%, the momentum in manufacturing and services sectors is reassuring." He added that private consumption and investment both grew over 7%, indicating a balanced economic expansion that supports corporate earnings and fiscal prospects.
Ranen Banerjee, Partner and Leader of Economic Advisory Services at PwC India, highlighted the strong performance in manufacturing, attributing it to a GST boost reflected in high-frequency indicators. He noted, "The services sector also showed strength due to festive and year-end travel activities. Agriculture printed softer, likely due to methodological changes like the double deflation method, requiring further observation in subsequent quarters."
Addressing IMF Concerns and Global Alignment
DK Srivastava, Chief Policy Advisor at EY India, stated that the methodological revisions are expected to elevate India's NSO data rating from the IMF's 'C' category to a higher tier, enhancing the reliability of national income statistics. Banerjee elaborated that the new series aligns more closely with global System of National Accounts (SNA) methodologies.
Notable improvements include:
- Dynamic tracking of the informal sector using Annual Survey of Unincorporated Enterprises data.
- Integration of GST data for computing Gross Value Added (GVA) net tax impacts.
- Adoption of the double deflation method to separately deflate outputs and inputs, yielding better value-added estimates.
- Use of the Proportional Denton method to smooth quarterly data revisions, ensuring comparability over years.
Path to Becoming a Top Global Economy
The GDP growth estimates reinforce India's trajectory toward becoming a leading global economy. Initially, IMF projections at the start of 2025 suggested India could overtake Japan to become the fourth-largest economy by the end of FY 2025-26. However, rupee depreciation has introduced some delays. Chief Economic Adviser V. Anantha Nageswaran estimates India will achieve a $4 trillion economy in the next financial year, with growth rates of 7-7.4% in FY 2026-27.
Nageswaran emphasized, "We are on course to becoming a top-three or top-four economy globally. Post-COVID, our growth rate has been among the best in the world, especially within the G20. Exchange rate fluctuations and global uncertainties may affect the timing, but the direction is clear." Despite this progress, India's per capita income remains low compared to other top economies, similar to China's position relative to the US, Germany, and Japan.
Importance of Base Year Revision and New Data Sources
The base year serves as a reference point for calculating real GDP growth by using price levels from that year. Periodic updates are crucial to prevent outdated representations as prices rise over time. The Ministry of Statistics and Programme Implementation (MoSPI) has aligned the revised GDP series with international statistical standards.
New data sources integrated into the GDP calculation include:
- GST data for allocating all-India estimates in the private corporate sector and cross-validation.
- Household sector measurements using Periodic Labour Force Survey (PLFS) and Annual Survey of Unincorporated Sector Enterprise (ASUSE), with GST data for cross-checking.
- e-Vahan data for assessing Private Final Consumption Expenditure on road transport services.
- Public Finance Management System (PFMS) for central government estimates and state allocations.
- Updated rates and ratios from recent studies by expert institutions, such as JNU for transport services and National Dairy Research Institute for milk products.
Additionally, the government now includes contributions from gig workers and domestic employees like drivers and cooks in GDP estimates, using PLFS data on worker numbers and wages.
Methodological Changes in Detail
MoSPI outlines seven major methodological shifts in the new GDP series:
- Double deflation replaces single deflation in agriculture and manufacturing, with other sectors using single extrapolation.
- Price adjustments utilize over 260 granular CPI indices and item-level WPI in manufacturing for precision.
- Updated rates and ratios from new surveys and expert studies.
- Enhanced household sector measurement via ASUSE and PLFS.
- Integration of Supply and Use Tables to balance GDP from production and expenditure approaches.
- Incorporation of new data sources like GST, PFMS, and e-Vahan for comprehensive and timely insights.
- Segregation of multi-activity private corporations using MGT-7/7A data for activity-wise value-added allocation.
These advancements aim to provide a more accurate, transparent, and internationally comparable view of India's economic growth, solidifying its status as a global economic powerhouse.
