India’s economy demonstrated strength in the July-September quarter of fiscal year 2025-26, clocking a GDP growth of 8.2 percent, the strongest expansion in six quarters, fueled by robust manufacturing output and resilient services activity. This exceeded market expectations of around 7.5 percent, positioning the country as the world’s fastest-growing major economy.
The latest quarterly data painted a picture of broad-based momentum.
Manufacturing expanded by 9.9 percent, up from 7.2 percent in the prior quarter, driven by pre-festive stockpiling and a 15 percent jump in factory production amid easing input costs. Services, accounting for over half of GDP, grew 7.8 percent, bolstered by digital payments and IT exports that hit $48 billion in the period. Construction followed suit with a 9.5 percent rise, supported by infrastructure spending under the government’s $1.4 trillion National Infrastructure Pipeline.
Agriculture, however, lagged at 3.5 percent, hampered by erratic monsoons and subdued rural demand.
Overall, India’s economy is on track to achieve 7.2 percent growth for FY26, aligning closely with the IMF’s October upward revision to 6.6 percent for calendar year 2025, outpacing China’s projected 4.8 percent and the global average of 3.2 percent.
Finance Minister Nirmala Sitharaman hailed the results as ‘a testament to structural reforms,’ pointing to initiatives like the Goods and Services Tax (GST) simplification and production-linked incentives that have drawn $120 billion in foreign direct investment since 2021.
Yet, just as policymakers celebrated the figures released Friday by the Ministry of Statistics and Programme Implementation (MoSPI), the International Monetary Fund (IMF) issued a sobering assessment by issuing a ‘C’ grade for India’s national accounts data.
The IMF’s ‘C’ Verdict
Despite the glowing growth trajectory, the IMF’s Article IV consultation report, published this week following consultations in February 2025, assigned India’s national accounts statistics, including GDP and gross value added (GVA), a ‘C’ rating under its Data Adequacy Plan for Standards and Codes (GDDS). This is the second-lowest grade on a four-point scale (A, B, C, D), indicating that while data is disseminated regularly and with reasonable detail, ‘methodological shortcomings somewhat hamper surveillance’ of economic trends.
The assessment, unchanged from last year’s review, contrasts sharply with India’s overall economic data rating of ‘B,’where components like monetary statistics and external sector balances scored higher.
At the core of the critique is the outdated 2011-12 base year for GDP calculations, now over a decade old in a rapidly evolving economy. This benchmark, derived from the National Sample Survey, predates seismic shifts such as the GST rollout in 2017, the digital revolution via Unified Payments Interface (UPI) transactions surpassing 15 billion monthly, and the green energy boom adding 20 gigawatts of renewables annually.
‘The base year no longer mirrors contemporary economic structures, leading to distortions in sectoral weights and price deflators,’ the IMF report states, noting reliance on the Wholesale Price Index (WPI) for adjustments instead of more precise Producer Price Indices (PPI), which India has yet to fully implement.
Exacerbating this are ‘sizeable discrepancies’ between GDP estimates from the production (income-based) and expenditure approaches – gaps averaging 1-2 percentage points in recent quarters. For instance, Q2’s production-side figure implies robust corporate earnings, yet expenditure data revealed subdued private final consumption (only 6.5 percent growth) and stagnant rural spending, per Periodic Labour Force Survey indicators.
The IMF attributes this to under-coverage of the informal sector, which employs 45-50 percent of the workforce but relies on extrapolated benchmarks from pre-2012 surveys, lacking real-time integration of GST Network data or MCA-21 corporate filings. Absence of seasonally adjusted series further clouds quarterly comparisons, masking festival-driven spikes in retail and agriculture.
The paradox of India’s high-octane expansion coexisting with a subpar data grade stems from structural legacies and resource constraints. While the economy’s real momentum, evidenced by 8.7 percent nominal GDP growth and a stock market capitalization nearing $5 trillion, is undeniable, the IMF warns that flawed metrics erode policymaker agility and investor trust.
For the Reserve Bank of India (RBI), imprecise consumption signals complicate interest rate decisions, as seen in its recent 25-basis-point cut to 6.25 percent amid cooling core inflation at 3.8 percent. Globally, the grade could deter sovereign funds, which allocated $25 billion to Indian bonds in 2025, by inflating perceived risks in pre-investment models.
Congress spokesperson Jairam Ramesh quipped on X that ‘high GDP rates aren’t sustainable without private investment momentum,’ highlighting a mere 0.2 percent rise in gross fixed capital formation, overshadowed by public capex at 12 percent.