Strong Q3 Growth in India’s GDP
India’s economy demonstrated resilience by achieving a remarkable GDP growth rate of 7.8% in the third quarter of the financial year 2025-2026. This growth occurred even amid external pressures, such as U.S. tariffs and global economic uncertainties. The newly revised GDP series, introduced recently, offers a more accurate reflection of India’s economic performance and trends.
The upward revision of GDP growth for the entire fiscal year 2025-2026 to 7.6% indicates a robust economic recovery, driven by strong performances across various sectors. This data comes at a pivotal time when the country aims for greater global economic stature.
The Importance of the Revised GDP Methodology
The revised methodology for calculating GDP marks a significant shift in how India’s economic performance is assessed. The base year for calculations has changed from 2011-12 to 2022-23. Such revisions are vital, as they allow for a contemporary reflection of the economic landscape, aligning more closely with international standards.
Experts, including Chief Economist Sujan Hajra from Anand Rathi Group, highlighted that the growth data across both the new and old GDP series showed consistent trends, emphasizing that the revisions offer reliability. He stated, “Nominal growth remains below 9%, but manufacturing and services momentum is reassuring.” This new series aims to address issues previously identified by the International Monetary Fund, which had criticized India’s national accounts data for being outdated.
Sectoral Breakdown of Growth
Manufacturing and Services Lead the Charge
The manufacturing sector in India has shown promising growth, attributed to positive effects from the Goods and Services Tax (GST). With the festive season boosting consumer demand, this sector’s performance signals economic revival. Ranen Banerjee, a partner at PwC India, noted, “The manufacturing sector printed strong due to the GST boost reflected in high-frequency indicators. The services sector also witnessed robust performance, influenced by year-end travel.”
On the demand side, both private consumption and investment surged over 7%, demonstrating a balanced expansion of economic activity. Banerjee explained, “This data supports an improved outlook for corporate earnings and enhances fiscal prospects, underpinning market sentiment.”
Agricultural Sector Performance
Contrarily, the agricultural sector recorded softer performance, attributed to method changes in the data collection process. As Banerjee observed, this weakness might result from the double deflation methodology that was introduced. The fourth quarter data will be crucial in evaluating the agricultural sector’s future performance and understanding the impact of these methodological adjustments.
Future Trajectory: Aiming for Top Economic Ranking
With robust GDP estimates, India is charting a course toward becoming the fourth-largest economy. According to assessments made by the International Monetary Fund, India is projected to surpass Japan by the end of fiscal year 2025-26. Chief Economic Adviser V. Anantha Nageswaran indicated a strong possibility of India becoming a $4 trillion economy in the next financial year. He projected that growth could range between 7% to 7.4% in FY 2026-27.
“We are on course to becoming the top three or top four largest economies in the world. There is no doubt about that. Our growth rate post-COVID is one of the best among G20 economies,” Nageswaran asserted.
Understanding the Revised Methodology
Several critical changes in the new GDP calculation methodology enhance data accuracy and reliability:
Base Year Update and Its Impacts
The base year serves as a reference point for calculating real growth. An outdated base year can distort economic reflections, necessitating periodic updates. The new base year of 2022-23 aligns with prevalent price levels and economic conditions, ensuring a more precise measure of growth.
Incorporating New Data Sources
The updated data sources significantly bolster GDP calculations. For instance, data from GST will now be incorporated to provide all-India estimates for the private corporate sector. This new approach enables enhanced cross-validation of annual accounts and improves estimates in quarterly national accounts, according to the Ministry of Statistics and Programme Implementation (MoSPI).
Measurement of Household Sector Growth
The inclusion of periodic surveys such as the Periodic Labour Force Survey (PLFS) allows for detailed assessments of the household sector, whereas previous estimates relied on proxy indicators. This methodology is expected to yield a more comprehensive understanding of household economic contributions.
Double Deflation Methodology
This refined method enhances the calculation of value added across sectors, differentiating between output and input prices to provide a clearer picture of real growth. By applying double deflation for key sectors, the revised series improves Gross Value Added (GVA) estimates.
International Benchmarking
The new methodology aligns more closely with global statistical conventions, ensuring India’s GDP data holds credibility on an international platform. Experts highlight that connectivity to international standards instills confidence in investors and economic stakeholders.
Banerjee emphasized that the adjusted assessments will better reflect the informal sector’s contributions using data from the Annual Survey of Unincorporated Enterprises, facilitating improved understanding of India’s diverse economic landscape.
Key Changes That Impact Economic Estimates
New Data Utilization
MoSPI has articulated several newly incorporated data sources like e-Vahan, enhancing the understanding of transport services and public financial management. Such detailed tracking provides a more accurate representation of consumption patterns, presenting more granular data and enhancing accuracy.
Adaptations for Gig Economy Workers
The government is also making strides in capturing the contributions of gig workers and informal employment. This includes hiring domestic workers, such as drivers and cooks, thereby making a more inclusive assessment of the economy. The explicit acknowledgment of these contributions reflects a changing employment landscape.
Public and Expert Reactions
The announcement of these improvements in GDP calculation methodology has largely been welcomed by economic analysts and industry stakeholders. They see this as a significant step forward in improving economic measurement, which is vital for informed policymaking and resource allocation.
Industry professionals anticipate that the enhanced accuracy in GDP calculations will lead to more favorable investment conditions, consequently fostering economic confidence and growth. Following the formal release of this data series, many have expressed optimism about the ensuing impact on the equity and debt markets.
Next Steps and Conclusion
As India continues on this path to becoming one of the largest economies globally, the implications of this GDP data will shape government policies and economic strategies in the foreseeable future. Continuing to monitor quarterly releases will be crucial for identifying trends and making informed decisions.
In the immediate term, the next quarter’s data is awaited with great interest to further assess sector performance, especially in agriculture. As economic landscapes evolve, India’s ability to remain agile will be essential for maintaining its growth trajectory. Enhancements in data collection, methodology, and analysis will play a vital role in sustaining economic momentum.