Confused by the debate over India’s 7.8% GDP growth? Here’s a simple explanation

Bade bade deshon mein aisi choti choti baatein hoti rehti hai – Javed Siddiqui, Dilwale Dulhaniya Le Jayenge (1995)

India’s gross domestic product (GDP) growth of 7.8% has been in the news all through this month.

Edit and oped pages of newspapers are buzzing. So are digital and social media. As is the University of WhatsApp.

But the trouble is that none of this writing manages to explain the 7.8% growth in simple English.

Why?

Economists and analysts who can explain such things, aren’t really used to explaining things. As John Lanchester writes in How to Speak Money: “As your vocabulary becomes more specific, more useful, more effective, it also becomes more exclusive. You are talking to a smaller audience.”

This is an attempt to explain India’s 7.8% GDP growth rate in simple English.

India’s GDP during the period April to June 2026 grew 7.8% in comparison to April to June 2025. GDP is a measure of the economic size of a country during a particular period. And by that definition GDP growth is a measure of economic growth.

The trouble is – and as I explain here – an economic growth of 7.8% doesn’t pass the basic smell test of the lived experiences of people’s daily lives.

So, how is the economy growing at a rate of 7.8%? The answer is slightly long, and perhaps even complicated in parts.

Let’s dig in.

No explanations on previous GDP figures

The 7.8% economic growth rate is the real GDP growth rate. It adjusts for rise in prices or inflation. India’s nominal GDP growth rate during April to June 2026 was 10.3%. The nominal GDP growth rate does not adjust for rise in prices.

How did we arrive at the 10.3% growth rate? The nominal GDP during April to June 2026 was Rs 88.26 lakh crore. During April to June 2025 it was Rs 80 lakh crore, meaning that the Indian economy grew 10.3% in nominal terms.

From this we subtract the price rise or inflation and get a real GDP growth rate of 7.8%. QED.

Well, hold on, hold on…

Now, in February 2026, India moved to a new method of calculating the GDP. This method has a base year of 2022-23. The earlier method had a base year of 2011-12.

Changing the base year is something that happens now and then because the structure of the economy changes. Like in 2011-12, India’s economy had nowhere as many smartphones as it does now. Or the fact that there was no Netflix, JioHotstar or Amazon Prime for that matter. These changes need to reflect in the way the GDP is calculated. So, from time to time the base year changes.

Also, newer data sources, which help calculate the size of the economy in a better way, become available.

As per the older method with a base year of 2011-12, the nominal GDP for April to June 2025 had first stood at Rs 86.05 lakh crore.

Subhash Chandra Garg, the former finance secretary, used this figure to come up with a 2.6% GDP growth figure, which has been all over the media.

The GDP of Rs 88.26 lakh crore under the new method is 2.6% higher than the Rs 86.05 lakh crore estimated under the old method.

Now, economists, analysts and business journalists jumped in immediately to bat for the government, pointing out that you cannot really compare GDP figures arrived at by using two different methodologies. It’s like comparing apples and oranges.

Nonetheless, as Dhananjay Sinha, Shambhu Ghatak and Mahendra Singh of Systematix Institutional Equities wrote in a recent research note: “Fair enough – but who grew the apples and oranges in the first place, and what does that say about India’s real growth trajectory?”

In the new method with a base year of 2022-23, the GDP figure for April to June 2025 was finally revised downwards to Rs 80 lakh crore – a revision of more than Rs 6 lakh crore.

(Some revision had happened under the old method too.)

And as explained earlier, the GDP of Rs 88.26 lakh crore during April to June 2026, means a growth of 10.3% in comparison to Rs 80 lakh crore in April to June 2025.

Indeed, the downward revision for April to June 2025, at 7%, was the highest for any three-month period between 2022-23 and 2025-26. And this led to a nominal growth of 10.3% during April to June 2026. Now, downward revisions do happen, but a 7% downward revision is on the higher side.

Further, the interesting bit is that the Indian GDP between 2022-23 and 2025-26 was reduced by Rs 42.1 lakh crore. Hence, the actual Indian GDP during 2022-23 to 2025-26 was around 96.6% of what was reported earlier.

And this primarily happened because the private consumption expenditure – the money you and I spend on buying goods and services – was reduced by a whopping Rs 79 lakh crore or more than 10%.

So, the actual private consumption during 2022-23 to 2025-26 was around 90% of what was reported earlier. In fact, private consumption earlier formed around 60-61% of India’s GDP. It has since fallen to around 56-57%.

The interesting thing is that there have been no clear explanations on this from the government.

Further, the business media, which is dependent on ads from the government, and makes money from conferences in which government ministers are chief guests, hasn’t bothered explaining this.

The economists working for corporates and stock brokers haven’t dwelled on this either.

So, why have India’s private consumption and GDP shrunk?

Those measuring India’s GDP now have better ways to measure the size of India’s informal sector, which forms a large part of the economy and can be difficult to measure.

The 2011-12 series – that’s the old method to calculate the GDP – used the size of India’s formal sector to estimate the size of India’s informal sector.

This was a flawed approach at a time when the informal sector was badly impacted by demonetisation, the hurried and botched up implementation of the goods and services tax and the negative economic impact of the pandemic.

This was a time when the informal sector was perhaps shrinking. Nonetheless, the math in operation used the size of the formal sector to estimate the size of the informal sector, ending up overstating the size of the informal sector and the Indian economy.

Of course, when high GDP growth figures were declared in the post pandemic years, the government celebrated them.

Also, the new GDP method has data only from 2022-23 onwards. It hasn’t published data for the years preceding 2022-23. And that makes things difficult.

The pandemic struck in March 2020. A bulk of its negative economic impact was felt in 2020-21 and 2021-22. The data for these years isn’t available as yet.

The GDP and private consumption expenditure for these years will be revised downwards majorly. Further, the GDP for 2019-20, is also likely to be revised downwards.

And only once data for 2018-19 becomes available will we be able to calculate growth between the pre-pandemic period and now.

In that sense, the economic growth measured from 2022-23 onwards doesn’t give us the correct picture, simply because it doesn’t capture the worst impact of the pandemic, the implementation of the goods and services tax and demonetisation.

The GDP deflator

So, let’s recount a few things. India’s nominal GDP grew 10.3%. The real GDP grew 7.8%. The nominal GDP doesn’t take price rise into account. The real GDP does, by using the GDP deflator, which helps take inflation into account.

The simplistic formula that is used to calculate the real GDP growth is: nominal GDP growth minus GDP deflator. As per this, the GDP deflator during April to June 2026 stood at 2.5% (10.3% minus 7.8%).

But the above formula is incorrect and is used more as an approximation. If we use the right formula the GDP deflator works out to 2.3%.

Now, everyone and their aunts have asked how can the GDP deflator be 2.3%, when the retail inflation is greater than 4% and the wholesale inflation is over 9%.

The double deflation method is responsible for this.

In the new GDP method, India has moved towards a double deflation method against the single deflation method that was followed earlier.

Let’s first try and understand this using simple mathematics of a bakery. (This is an extremely simplistic example to explain the concept. Do keep that in mind.)

Let’s say a bakery buys flour to bake bread. It buys 60 kg of flour at Rs 30 per kg. This means it spends Rs 1,800 (60 kg multiplied by Rs 30 per kg).

Now, it sells 100 loaves of bread at Rs 40 per loaf. This means a revenue of Rs 4,000. (Again, I have no idea of how much flour it takes to bake one loaf of bread. So, if you are in the bakery business and reading this, apologies in advance.)

This means a value added of Rs 2,200 (Rs 4,000 minus Rs 1,800) for the bakery.

This is how things are in the first year, that is the base year.

Let’s say in the second year the bakery sells 10% more loaves of bread. That means it sells 110 loaves against 100 that it sold during the base year.

Let’s say the total amount of flour that it needs to purchase also goes up 10% to 66 kgs from 60 kgs earlier.

Now, this is where things get interesting. Let’s say the price of flour goes up 50% to Rs 45 per kg from Rs 30 per kg earlier.

The bakery is unable to pass on the complete increase in the price of flour to the consumers buying loaves of bread, because of the huge competition that exists amongst bakeries.

Let’s say it is able to raise the price of bread only 8% to Rs 43.20 from Rs 40 per loaf earlier.

So, the revenue now stands at Rs 4,752 (110 loaves multiplied by Rs 43.20 per loaf).

In order to buy flour, the bakery spends Rs 2,970 (66 kgs of flour multiplied by Rs 45 per kg).

So, the value added by the bakery now stands at Rs 1,782 (Rs 4,752 minus Rs 2,970). This is 19% lower than the value added of Rs 2,200 in the base year.