India has just reported a real GDP growth rate of 7.8%. On the surface, this looks like a remarkable achievement for a developing economy. But scratch beneath the headline, and the picture becomes murkier.
The reported nominal
GDP growth is 8.8%, which implies that inflation for the quarter has
been pegged at just 1%. This raises several concerns:
- For a high-growth developing economy like India, inflation tends to hover in the moderate-to-high range; 1% seems statistically out of step with reality
- Neither the rupee’s depreciation w.r.t. other developed currencies, nor commodity prices suggest such a low inflation figure
- Only a month ago, inflation was reported at 2.3%. A quarterly number of 1% implies massive volatility in measurement, which is unusual unless methodology is questionable
- By underreporting inflation, real GDP growth is automatically inflated, giving an exaggerated sense of economic expansion.
Further, low inflation often correlates with high unemployment. If inflation is truly as low as reported, it could indicate that demand is weak, wages are stagnant, and employment creation is lagging – not the picture of a booming economy.
The GDP number is also being used as a political response to Donald Trump’s recent jibe, calling India a “dead economy.” While 7.8% growth seems to counter that narrative, the comparison is misleading:
- Growth vs. size: GDP growth (the rate of increase) is not the same as GDP (the absolute size). India can grow fast from a lower base while still being far behind developed economies in real output.
- GDP per capita problem: Despite being the 5th (or 4th depending on whom you ask) largest economy by GDP, India’s per capita income remains low. Growth does not translate into high standards of living.
- Skewed distribution: Putting the top1% of the population aside, the effective GDP per capita for the remaining 99% collapses from ₹ 2.58 lakh to around ₹ 60,000 – a more realistic indicator of average living standards.
In a nutshell,
1. India’s
GDP is not as high as it looks
2. Inflation
is understated
3. The
prosperity is unequitable
This narrative is a dangerous one. We are now saying to the world that we don’t mind misreporting economic figures for political mileage. Think of countries where economic indicators are not reliable – Ethopia, North Korea, South Sudan. Now we are heading in that direction. But yes, we have a 7.8% growth, which is good for a developing economy. Yay!
