India's latest economic growth figures have delivered a significant surprise to market analysts and economists, sparking discussions about data interpretation rather than immediate concerns over data quality. Official statistics released on Friday revealed the economy expanded by 8.2% in the quarter ending September 2025, a figure that notably exceeded the Reserve Bank of India's 7% projection and consensus market estimates.
The Surprise Element and the Data Gap
The unexpectedly high growth number arrived just two days after the International Monetary Fund assigned a 'C-grade' to India's national accounts data. This timing inevitably led to questions about the data's accuracy in reflecting the true state of the economy. However, leading economists suggest the surprise stems more from a lack of high-frequency tracking tools for key sectors than from flawed data.
Gaura Sengupta, Chief Economist at IDFC First Bank, clarified her stance, stating she would not question the data's integrity. She emphasized the core issue: "There are not enough high-frequency indicators available for people to track and forecast consumption and services growth accurately." The services sector, which constitutes a major portion of GDP, reported a robust 9.2% growth in Q2, a surge that traditional indicators like the Index of Industrial Production (IIP) fail to capture in real-time.
Analysts from Bernstein echoed this sentiment in a client note, admitting, "Let’s be honest, we didn’t see this 8.2% growth coming, even in the wildest dreams." They pointed out the difficulty in mapping IIP growth, which averaged 4.1%, with the headline GDP number, citing the inherent flaw in tracking the dominant services sector through conventional industrial parameters.
Behind the Numbers: Methodology and Momentum
Sengupta explained the dual methodology of GDP calculation. The headline 8.2% real GDP figure is derived from the Gross Value Added (GVA) route, where indirect taxes are added and subsidies subtracted. The expenditure route, which sums consumption, investments, and net exports, often shows discrepancies due to less reliable data. "We have better data for GVA than we do for the expenditure side," she noted.
Several economists attributed part of the growth momentum to strategic policy moves. HSBC's economists, led by Pranjul Bhandari, highlighted the impact of Goods and Services Tax (GST) rate cuts, announced in mid-August and implemented on September 22. Production likely picked up in anticipation of boosted consumer demand post the cuts. Additionally, they observed that lower-income states are now growing faster than their higher-income counterparts, contributing positively to the national GDP, which is an aggregate of state-level figures.
The Worrying Undercurrent: Slowing Nominal Growth
Despite the strong real GDP print, a concerning trend emerged in nominal GDP growth—GDP measured at current prices. Nominal growth slowed to 8.7% in Q2, marking its slowest pace in 19 quarters. The gap between nominal and real GDP growth narrowed sharply to just 0.5%, down from 1% in the previous quarter.
This slowdown is critical because government budgets, fiscal deficit targets, and long-term growth projections are based on nominal GDP. Madan Sabnavis, Chief Economist at Bank of Baroda, linked the thin gap to low inflation. "When we look at GDP forecasts, we look at current prices and since inflation—both CPI and WPI—are low, the difference between real and nominal growth is thin," he explained. The benign inflation leads to a low GDP deflator, the metric used to adjust nominal GDP to real terms.
Not all observers are convinced by the growth narrative. Alexandra Hermann of Oxford Economics expressed suspicion, suggesting that in the previous quarter, an artificially low deflator inflated real growth, and in this quarter, statistical discrepancies might have played a significant role, potentially contributing as much as half to the headline growth number.
The release of these strong numbers had a muted impact on financial markets, with the Indian rupee touching a record low of 89.7575 against the US dollar on the following Monday. The overarching question among experts now is whether the rebound in private consumption witnessed this quarter can sustain its momentum, especially after the recent GST reductions, which took effect at the very end of the September quarter.
