ETMarkets Smart Talk | Don't dismiss 7.8% GDP growth as a statistical upgrade; the acceleration is real: Garima Kapoor

India's latest 7.8% GDP growth print has triggered a familiar debate: is the economy genuinely accelerating, or are revised methodology and statistical changes making the numbers look stronger than they really are?

According to Garima Kapoor, Deputy Head of Research and Economist at Elara Capital, it would be wrong to dismiss the growth number as merely a statistical upgrade.

While the new GDP series has changed historical estimates and improved the way economic activity is measured, high-frequency indicators—from industrial production and GST collections to credit growth, exports and PMI data—also point towards underlying strength in the economy.


In an interaction with Kshitij Anand of ETMarkets, Kapoor says the acceleration is real within a consistent methodology, with corporate earnings, manufacturing activity and exports providing further confirmation.

However, she also flags important questions around the unusually low GDP deflator and the disconnect between headline economic growth and its translation into broad-based jobs, wages and household incomes. Edited Excerpts -

Q) Is 7.8% growth genuinely economic acceleration or partly a statistical upgrade?

A) The 7.8% figure itself is a genuine year-on-year comparison within the new series, not an artifact. High-frequency indicators (IIP, credit growth, GST, exports, PMI) broadly corroborate solid activity, though the statistical upgrades improve accuracy and alter historical levels/growth rates.

The acceleration vs. last year’s Q1 is real within consistent methodology; the absolute level of the economy is lower than previously estimated.

Our own coverage universe of more than 300 cos ex-energy posted a PAT growth of 18%, exceeding expectation of 14% growth.

The new series (2022-23 base, updated indicators, double deflation) revised earlier estimates downward (e.g., Q1 FY26 nominal GDP from ~₹86 lakh crore in the old series to ₹80 lakh crore).

Comparing the new Q1 FY27 nominal figure to the old-series prior-year number produces a misleadingly low ~2.6% “growth,” which is methodologically invalid.

Unless the previous year’s series is revised, the new series cannot be used in estimating YoY growth. Revising previous year’s series is a normal practice each quarter. There is nothing unusual about it.

Q) With nominal GDP growing at 10.3% and real GDP at 7.8%, the implied GDP deflator is relatively low. Are we sufficiently interrogating the deflator, especially when households and businesses continue to experience significant food, energy and input-cost pressures?

A) The implied GDP deflator is roughly 2.3–2.5%. This is well below CPI (~3.9%) and far below WPI (>9%). The gap is expected and not automatically a flaw: the GDP deflator measures the price of value added (output minus intermediate inputs), not consumer or wholesale transaction prices.

Composition of GDP also matters—services (large weight, often lower inflation) dominate, while food/energy pressures hit households harder via CPI.

In manufacturing, double deflation produced a negative implicit GVA deflator (~–1.5%): nominal manufacturing GVA +7.7%, real +9.2%. Input prices rose faster than output prices, so real value added was boosted relative to nominal.

As output prices rise in subsequent quarters, this should get reversed as there is always a lead and lag between input price rise and output price rise.

While the low overall deflator warrants scrutiny (especially amid energy/geopolitical shocks), it is consistent with the methodology and does not by itself invalidate the real-growth print.

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Q) Exports grew 12% in real terms, but how much of that reflects genuine volume growth and how much reflects the price adjustment used to calculate real exports?

A) Real exports grew 12% (vs. 6% a year earlier). Merchandise and services exports also showed strong nominal/volume performance in high-frequency data (engineering goods, electronics, chemicals strong; cumulative April–June combined exports up ~13%).

The real figure already incorporates price deflation, so the 12% is intended as a volume/growth measure. Without detailed export-price indices or unit-value data in the release, an exact split is not public, but the strength aligns with the data.

Genuine volume growth appears substantial; price effects are already adjusted out in the real series.

Q) Manufacturing grew 9.2%, but the strongest gains appear concentrated in sectors such as electrical equipment, transport and electronics. Is this genuinely broad-based industrial growth or sector-specific strength being extrapolated into a national manufacturing boom?

A) Manufacturing GVA grew 9.2% real (vs. 8.3% a year earlier). Supporting IIP data show very strong gains in electrical equipment (~27%), computer/electronic/optical products (~12.4%), and solid machinery growth. Capital goods and related segments were robust.

This is not narrow: construction, electricity/utilities, and overall secondary-sector growth (8.6%) also improved, and credit to industry was strong.

However, the largest contributions came from a handful of high-growth, policy-supported segments (electronics, electricals, autos/transport-related). Mining contracted which could be amplifying the impact of middle east conflict.

Q) Are strong listed-company earnings really proof of a broad economic recovery when corporate India represents only a small slice of the economy?

A) Listed-company results (especially large-cap and formal-sector firms) are useful leading/confirming indicators for organized manufacturing, services, and investment, but they cover only a limited share of GVA.

However, listed company data becomes a good base for extrapolating what could be true for other parts of the economy. For instance, high-frequency formal indicators (GST, credit, IIP) also indicated strength.

Q) If GDP is growing at nearly 8%, where is the equivalent acceleration in jobs, wages and household incomes?

A) Private final consumption expenditure grew a solid but not explosive 7.1%. Formal-sector indicators (bank credit to services/industry, hiring in organized segments) have been encouraging, and labour-force participation/unemployment metrics have been relatively stable.

However, clear, contemporaneous acceleration in broad-based employment, real wages, or rural/household incomes matching the near-8% GDP rate is not fully visible in available high-frequency data.

This has been a big challenge in India’s growth recently: the “jobs and incomes” translation remains incomplete relative to the headline GDP figure.

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Q) How do you see the growth panning in the next few quarters amid elevated crude oil prices and geopolitical concerns?

A) Near-term momentum should remain reasonably resilient (supported by domestic demand, investment, and services especially in run up to the festive season), even as risks are tilted to the downside from elevated crude, West Asia-related supply/price shocks, El Nino and global uncertainty.

High-frequency data through July remained constructive on industry and exports. We see full year GDP growth at 7-7.2% with risks marginally on the downside.

(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)