Modi's Ex Chief Economic Advisor: India's Economy is 22% to 31% Smaller Than Official Claim
New research by several economists, including India's former Chief Economic Adviser Arvind Subramanian, finds that the country's GDP has been overstated by 22% to 31%. It says: "The level of (India's) real GDP is overstated by about 22% and the level of consumption by about 31%". "India's economy is thus smaller and the average standard of living significantly lower than official estimates indicate", it adds. The current GDP of India is less than $3 trillion, according to the authors.
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| Indian GDP Overstated by 22% to 31%. Source: PIIE |
In a paper published by Peterson Institute for International Economics, the authors state that "India’s annual economic growth during the boom years between 2005 and 2011 may have been underestimated by about 1–1½ percentage points on average, and subsequent growth between 2012 and 2023 may have been overestimated by about 1½-2 percentage points". It means that India's actual annual GDP growth during Prime Minister Modi's government has been closer to 4%, not 6% as officially claimed. Pakistan's GDP growth rate has been about 3.5% during this period.
The authors explain that the estimation error is caused by two methodological issues. The first issue leading to the misestimation is that the economy’s formal sector has been used as a proxy for the vast informal sector, even though the latter was disproportionately hit after 2015 by demonetization, the introduction of the goods and services tax, and the COVID-19 pandemic. The second issue causing misestimation is that the deflators for many sectors have been based on commodity prices, which have moved sharply relative to others.
Ruling politicians in New Delhi continue to hype their country's economic growth even as the Indian currency hits new lows against the US dollar, corporate profits fall, electrical power demand slows, domestic savings and investment rates decline and foreign capital flees Indian markets. The International Monetary Fund (IMF) has questioned India's GDP and independent economists Professors Arun Kumar and Ashoka Modi and investment banker Ruchir Sharma have detailed why the Indian official data can not be trusted. It seems that the BJP-led government of Prime Minister Narendra Modi is fast losing credibility by politicizing the civilian bureaucracy and the military brass to project their economic and military failures as successes.
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| IMF Gives C Grade to India's GDP Data |
Beyond the disputed claim of being the "fourth largest economy", the Modi government's failure on the national health and wellness front is also getting more attention. “Air is unbreathable. Water is undrinkable. Food is adulterated. What’s the point of becoming the 4th largest economy?” asked India-American technology entrepreneur Sabeer Bhatia in an X message recently. Gita Gopnath, Harvard professor of economics, said at the World Economic Forum in Davos this week that the economic impact of pollution on India is more severe than the effects of tariffs imposed on the country. “About 1.7 million lives are lost every year in India because of pollution. That’s 18% of the total deaths in India,” Gopinath said, quoting a World Bank study. “Even from an international investor’s perspective … the pollution holds you back.”
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| Unsafe Drinking Water in India Claimed as 4th Largest Economy. Source: DownToEarth |
An international badminton tournament in India has brought global spotlight on the lack of basic hygiene in India. Foreign players complained about dusty floors, dirty courts, bird droppings and unhygienic conditions at the India Open in New Delhi. “I think the floors are dirty. There is a lot of dirt on the courts. There’s bird excrement. There are birds flying around in the arena,” said 28 year-old Denmark women’s singles player Mia Blichfeldt. Andres Antonson, world number three badminton player, withdrew from the India Open Super 750 in New Delhi for the third consecutive year, choosing to pay a $5,000 fine. He cited "extreme" hazardous air pollution in Delhi as the reason for skipping the mandatory tournament, arguing it is not a safe place to hold the event.
The IMF has recently expressed doubts about Prime Minister Narendra Modi's BJP government's GDP data. It has particularly questioned the government's statistical methodologies, inflation measurement, and the estimates of the informal economy used in reporting the country's gross domestic product. Professor Arun Kumar of Jawaharlal Nehru University believes the IMF's concerns are valid. He thinks the real size of India's economy is only half of what is officially claimed. “The economy is almost 50% wrong – when the government says it’s $3.8 trillion, my estimate is it is probably still $2.5 trillion because we are overestimating the unorganized sector, which is actually declining. This is building up over a period of time,” Kumar told Indian journalist Karan Thapar.
In its recent assessment, the International Monetary Fund (IMF) has given a "C" grade to India's national accounts. In particular, the IMF has raised the issue of the government using 2011-12 as the base year as being outdated, the discrepancy between production and consumption data and the use of Wholesale Price Index, and not a Producer Price Index, to deflate many economic activities to derive real GDP from nominal GDP.
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| Indian Firms Falling Corporate Profits. Source: Bloomberg |
Corporate profits of Indian firms are growing at a much slower pace than the 8.2% GDP growth in its most recent quarter. Net income for Nifty 50 Index firms likely rose 1.1% in the three months through Dec. 31 from a year earlier, according to analyst estimates compiled by Bloomberg. That would be the slowest pace in five quarters, weighed down by deteriorating margins for banks. Falling profits and declining currency are causing foreign capital to flee Indian markets. Foreign Portfolio Investors (FPIs) pulled out over $20 billion from Indian equities in 2025, marking a severe, sustained withdrawal that has continued into 2026. Net Foreign Direct Investment (FDI) has seen consecutive monthly outflows, including $1.67 billion in October and $446 million in November 2025. Investment banker Ruchir Sharma wrote about it in a Financial Times op ed titled "India needs to import more capital and export fewer workers". Ruchir wrote: "Most strikingly, corporate revenue normally grows (or shrinks) with the economy — in any country. But last year corporate revenue growth for listed companies in India decelerated to barely half the GDP growth rate"
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| Falling Indian Rupee. Source: Reuters |
The source of the biggest error is the way India estimates the informal economy which, including agriculture, accounts for almost 45% of GDP. To do so, India uses the formal sector as a proxy to estimate the performance of the informal sector. But if the two sectors are moving in opposite directions, as has happened after demonetization, GST imposition and the pandemic, you could end up overestimating the unorganized sector.
Indian-American economist Ashoka Mody, author of "India is Broken", has argued that the current unemployment crisis in India is a direct result of the destruction of the informal sector, particularly the mom and pop stores that employed a large number of Indians.
Questions about the veracity of India's official GDP figures are not new. These have been raised by many top economists. For example, French economist Thomas Piketty argues in his best seller "Capital in the Twenty-First Century that the GDP growth rates of India and China are exaggerated. Picketty writes as follows:
"Note, too, that the very high official growth figures for developing countries (especially India and China) over the past few decades are based almost exclusively on production statistics. If one tries to measure income growth by using household survey data, it is often quite difficult to identify the reported rates of macroeconomic growth: Indian and Chinese incomes are certainly increasing rapidly, but not as rapidly as one would infer from official growth statistics. This paradox-sometimes referred to as the "black hole" of growth-is obviously problematic. It may be due to the overestimation of the growth of output (there are many bureaucratic incentives for doing so), or perhaps the underestimation of income growth (households have their own flaws)), or most likely both. In particular, the missing income may be explained by the possibility that a disproportionate share of the growth in output has gone to the most highly remunerated individuals, whose incomes are not always captured in the tax data." "In the case of India, it is possible to estimate (using tax return data) that the increase in the upper centile's share of national income explains between one-quarter and one-third of the "black hole" of growth between 1990 and 2000. "
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India’s new GDP series ditches broad-based deflators for granular, sector-specific price indices ahead of February 27 release
https://www.forbesindia.com/article/news/new-gdp-series-adopts-double-deflation-using-refined-price-indicators/2991595/1
India’s new GDP series will replace broad-based deflators with sector-specific indices and updated price data to calculate economic output, according to a report by the Sub-Committee for Constant Price Estimates. The transition will incorporate a new CPI (Base: 2024) and Unit Value Indices (Base: 2022-23), alongside an updated WPI (Base: 2022-23) or Producer Price Index where available.
By separately deflating output and intermediate consumption—the revised framework aims to provide a more accurate measurement of the real Gross Value Added (GVA) across the manufacturing and services sectors. The report also notes that the “single extrapolation” method is retained for some compilation categories where data limitations produce excessive volatility.
The new GDP series is set for release on February 27.
Manufacturing and unincorporated sectors
The panel has recommended sector-specific price deflation indicators, replacing the broader, less precise tools used in the current 2011-12 base series.
Not all sectors will be measured the same way. Where data is rich and economic behaviour predictable, the Sub-Committee has recommended the double deflation method, which separately prices output and inputs to arrive at real value added. But for categories where information on imported materials is thin or unreliable, the panel has opted to retain single extrapolation. Seven of the thirty categories under manufacturing will still use the single extrapolation method. For instance, manufacture of electronic components, consumer electronics, magnetic and optical media; computer and communication equipments; pharmaceuticals; and food and oils processing, etc.
For the others, to calculate real growth for each manufacturing category, the new methodology derives GVA by separately deflating output and intermediate consumption. While the output is deflated using the standard Wholesale Price Index (WPI), a more complex composite deflator was developed for intermediate consumption. This composite index combines item-wise WPI for domestic goods, National Accounts deflators for services, and a custom price index for imported items based on historical unit prices from the Annual Survey of Industries (ASI).
The report also addresses long-standing challenges in measuring the unorganised sector and utilise direct data from the Annual Survey of Unincorporated Sector Enterprises (ASUSE) alongside Periodic Labour Force Survey (PLFS) workforce estimates.
For the financial sector, the Consumer Price Index (CPI-General) has been recommended to deflate outputs across most financial sub-sectors, while the Experimental Banking Services Price Index (BSPI) will be used for deposit taking corporations (except RBI).
Generations of Indian workers and businesses have turned the Arab side of the Gulf into a vital appendage of their own country.
https://www.nytimes.com/2026/03/22/business/india-economy-middle-east.html
Only a few weeks ago, the stars seemed to be aligning for India’s economy.
India was one of the fastest-growing major economies, consistently outpacing its powerful neighbor, China. It had surpassed Britain to become the world’s fifth-largest economy and was within striking distance of overtaking Japan for fourth. In a world beset by risks — from the war in Ukraine to President Trump’s tariff campaign — India’s skilled labor force, fiscal discipline and strong currency reserves made it a relatively safe bet.
An underappreciated component of the momentum was India’s deepening ties to the Arab countries of the Persian Gulf. But that advantage is now turning into a liability.
The U.S.-Israeli war on Iran is a perfect storm for India’s economy.
The Middle East accounts for roughly 40 percent of the country’s oil imports and 80 percent of its gas. As energy prices soar, the effects ripple across the economy, threatening India’s mix of strong growth and mild inflation.
The Gulf is also a crucial export market for Indian goods, now at risk from disruptions to air routes, shipping and business operations. Many Indian businesses rely on hubs like Dubai to distribute their goods globally.
India is the world’s largest recipient of remittances from workers abroad, with about 40 percent coming from the Middle East. Any hit to overseas Indian workers’ earnings would further weaken an already softening currency.
Last week, Goldman Sachs warned that India was facing slower growth, higher inflation and a weaker currency over the coming year, driven by rising energy prices, slowing exports to the United Arab Emirates and its neighbors and potentially lower remittances.
The investment bank said India’s “positive growth story” was now facing a “new broadside.” India’s stock markets have fallen about 10 percent over the past month.
Since the energy crisis of the 1970s, India has relied heavily on oil shipped through the Strait of Hormuz, the narrow shipping corridor along Iran’s southern coast that carries about one-fifth of the world’s oil supply.
Any extended disruption is likely to strain India’s finances. Shortages of cooking gas are already squeezing households. The government has the power to control fuel prices, but cutting excise duties or expanding subsidies for a prolonged period would add to fiscal pressure.
Prime Minister Narendra Modi is expected to keep most prices in check ahead of state elections in April. His government has worked to secure supplies, first obtaining U.S. permission to buy Russian crude that was stranded at sea because of sanctions. India also secured safe passage for two tankers carrying gas that had been stranded in the strait after speaking with Iranian officials.
When global oil prices rise above $100 a barrel, pressure on India’s economy intensifies. It imports about 90 percent of its crude.
In a research note last week, the Australian banking group ANZ said that while the Indian economy was starting from a position of strength with high growth and low inflation, “its ability to cope with a durable energy shock will be tested.”
The report said that the country’s economic players — oil companies, the government and Indian households — “do not have robust financial buffers to withstand a prolonged oil price shock.”
Rathin Roy, an economist and dean at GITAM, a university in Hyderabad, said the crisis in the Gulf would force India to “watch its balance of payments very, very carefully.” Imports will become more expensive just as India’s exports are disrupted. India’s foreign-exchange reserves are strong now but could be cut in half within the year.
Generations of Indian workers and businesses have turned the Arab side of the Gulf into a vital appendage of their own country.
https://www.nytimes.com/2026/03/22/business/india-economy-middle-east.html
India’s government hailed the Arab states of the Gulf as the country’s “largest trading partner bloc” when they announced a free-trade agreement four days before the war began. India sends them a wide range of products: electronics, textiles, gems, basmati rice — even refined fuels.
Talmiz Ahmad, a retired diplomat who has served as India’s ambassador to three Gulf countries, said half of the $50 billion a year in Indian goods exported to the United Arab Emirates was shipped on to Pakistan, Afghanistan and Africa.
Around 10 million Indians make their home in the six countries lining the southern and western shores of the Persian Gulf. Mr. Ahmad said the economies of the Middle East and India were so interconnected that “every project in the Gulf has an Indian fingerprint.”
India’s ties to the region span the full economic spectrum. The Indian tycoon Mukesh Ambani, Asia’s richest man, broke a local record in 2022 when he paid a reported $163 million for a villa in Palm Jumeirah — a luxury complex in Dubai that came under attack on the war’s first day. At the other end, many unemployed laborers migrate in search of work, often staying on illegally.
Some Indian workers live apart from their families for years to send 50 to 70 percent of their modest incomes home. In their numbers, they add up. Last year, India’s global remittances amounted to nearly $130 billion — nearly the same amount India spends importing oil. More than a third came from the Gulf.
An Indian man working a construction job in Qatar said he had heard blasts and knew of nearby labor camps that had been set on fire by falling missiles during the fighting, but he said his biggest concern was the financial stability of his family 1,800 miles away in the crowded Indian state of Uttar Pradesh.
He said he and his colleagues wanted the war to end so that their projects could resume. He asked not to be identified because he did not want to attract the attention of the local authorities, who have been arresting foreign workers on charges of disseminating alarmist misinformation about the war.
The worker said he had considered returning to India but was afraid his employer would never rehire him.
https://www.msn.com/en-in/money/topstories/goldman-sachs-lowers-india-s-gdp-growth-forecast-for-2026-to-5-9/ar-AA1ZgMc0
Goldman Sachs has lowered India's GDP growth forecast for 2026 to 5.9 per cent, down from 7 per cent before the US-Iran conflict. They had lowered it to 6.5 per cent in March. The revision follows rising crude oil prices due to supply disruptions, especially near the Strait of Hormuz.
The investment bank expects Brent crude to average $105 per barrel in March and $115 in April if the disruption continues until mid-April. It has also raised India's inflation forecast for 2026 to 4.6 per cent, up from 4.2 per cent in mid-March and 3.9 per cent before the conflict.
Although inflation is expected to stay within the Reserve Bank of India's target range, Goldman Sachs anticipates upward pressure on consumer prices from currency depreciation and higher import costs. The report projects a 50 basis points hike in the policy repo rate this year, from the current 5.25 per cent, to manage inflation and currency weakness.
Supply disruptions in the Strait of Hormuz could have lasting effects on oil prices and inflation. If flows remain halted until mid-May or if infrastructure damage prolongs supply issues, Brent crude could stay around $100 to $115 per barrel in the last quarter of 2026. This would likely increase inflation and weigh on economic growth.
Goldman Sachs notes that while higher inflation is a concern, the more significant impact over time may be on growth due to prolonged supply constraints and elevated oil prices. The Indian rupee has weakened by 4 per cent against the US dollar this year, following a 4.7 per cent decline in 2025, adding to inflationary pressures.
The currency depreciation is expected to increase the pass-through effect to retail prices, influencing inflation further. Additionally, Goldman Sachs forecasts India's current account deficit could widen to 2 per cent of GDP in 2026, up from 1.3 per cent in the October-December 2025 quarter, reflecting challenges from higher import costs and currency depreciation.