The International Monetary Fund's (IMF) recent 'C' rating for India's economic data has thrust a long-standing debate into the public spotlight, raising questions about the reliability of the country's impressive growth figures. This development comes even as India reported a robust 8.2% growth in Gross Domestic Product (GDP) for the July-September quarter of the current financial year.
The Core of the Controversy: What the 'C' Rating Means
The IMF's new rating system, initiated last year, has formally categorized India's GDP statistics as having "some shortcomings that somewhat hamper surveillance." This public assessment echoes what economists and statisticians have pointed out for nearly a decade. The fundamental issue lies in India's reliance on a base year of 2011-12, which is now over a decade old and fails to accurately reflect the current economic structure.
Beyond the outdated base, experts cite several critical problems. These include opacity in the use of deflators to calculate real growth by stripping out inflation, significant mismatches between estimates derived from the production and expenditure approaches, and inadequate coverage of the vast informal sector. These shortcomings place India in a dubious club alongside China, where high-growth narratives are accompanied by data quality concerns.
Decoding the Q2 Numbers: Growth Amidst Discrepancies
The issues flagged by the IMF were starkly visible in the second-quarter data. While the headline real GDP growth was 8.2%, a deeper look reveals troubling inconsistencies. The nominal GDP growth slowed to 8.7%, down from 8.8% in the April-June quarter and 10.8% in January-March.
A major red flag was the enormous discrepancy of ₹1.84 trillion. This gap, representing the difference between GDP calculated via production and expenditure methods, accounted for roughly half of the reported ₹3.7 trillion increase in GDP at constant prices. If this discrepancy is stripped away, the underlying growth momentum for the quarter falls to just about 4.1%.
Economists point to the problematic use of deflators as a key culprit. The Wholesale Price Index (WPI), which primarily measures goods inflation and was nearly flat at 0.02% in Q2, is being used to deflate service sector components. This inappropriate method can artificially inflate real growth figures. "The dependence of the statistics office on some wholesale measure of inflation centred towards the goods side to deflate the services sector may also be exaggerating growth," noted a report by ICICI Primary Dealership.
Furthermore, India continues to use a single deflation method instead of the globally accepted double deflation technique, which uses separate measures for input and output prices. This leads to misleading results, especially when input and output prices diverge significantly.
The Road to Reform: A New Series and Persistent Challenges
The Ministry of Statistics and Programme Implementation (MoSPI) has acknowledged these issues and is working on a long-overdue update. A new GDP series with a revised base year is planned for launch by the end of February 2026. This overhaul aims to incorporate new data from the MCA-21 corporate database, use regular surveys for the informal sector instead of extrapolations, and address potential overestimation in company data.
"I am sure when the IMF comes back next year around this time, you would see better comments on statistics," said N.R. Bhanumurthy, Director of the Madras School of Economics.
However, key challenges may remain unaddressed. A discussion paper on the new series indicates it will continue with a single deflation method for several sectors, albeit with tweaks like using Consumer Price Index (CPI) items for some services. The IMF's recommendation to adopt a Producer Price Index (PPI) that includes services is unlikely to be implemented soon. "We haven't been able to get the data as producers have absolutely resisted giving data on the producer prices," explained Pronab Sen, former Chief Statistician of India.
Even the upcoming revision may not be the final word. With the national census delayed by at least 15 years, the new GDP base will precede actual population figures. "I expect a revision in another 3-4 years again as soon as the census is over to replace population projection with actual population figures," said P.C. Mohanan, former acting chairperson of the National Statistical Commission (NSC).
As India seeks to cement its position as a global economic powerhouse, the credibility of its data is paramount. The upcoming statistical reforms are a critical step, but experts urge the country to avoid such long gaps in future upgrades to ensure its growth story is not just impressive, but also impeccably documented.
