New Delhi: India’s economy grew strongly in the third quarter of FY26, even as the government introduced a new method of calculating GDP.
According to the second advance estimates released on Friday, real GDP grew 7.8% year-on-year in Q3. This was lower than the 8.4% growth recorded in Q2 but higher than the 6.7% growth seen in Q1. Nominal GDP growth in Q3 stood at 8.9%.
The data was released along with a major revision in the national accounts. The Ministry of Statistics and Programme Implementation has shifted the base year for GDP calculation to 2022-23 from the earlier 2011-12. The base year is used to measure growth at constant prices. It is updated from time to time to reflect changes in the structure of the economy and to improve data quality.
With the new series, real GDP growth for the full year FY26 is now estimated at 7.6%. This is higher than the 7.4% projected in the first advance estimates that were based on the old series. It is also higher than the 7.1% growth recorded in FY25 under the revised data. Real gross value added, which measures output across sectors, is expected to grow 7.7% in FY26 compared to 7.3% in FY25. In value terms, real GDP is projected at ₹322.58 lakh crore in FY26, up from ₹299.89 lakh crore in FY25. Nominal GDP is expected to grow 8.6% during FY26.
However, under the new series, the size of the economy at current prices has been revised downward for the years from FY24 to FY26. For FY26, nominal GDP is estimated at ₹345.47 lakh crore, which is about 3.3% lower than earlier estimates based on the old series. The size of the economy for FY24 and FY25 has also been cut by 3.8% each.
The government said the revision aims to better capture structural changes in the economy. It uses more recent and detailed data sources such as GST data, public finance management system data and e-Vahan vehicle registration data. These sources provide more timely and detailed information.
‘Double Deflation’ Method
The methodology has also been improved. A new method called double deflation is now being applied to calculate output in manufacturing and agriculture, whereas most other sectors continue to be measured using the single extrapolation approach. Earlier, single deflation was widely used. The new series also relies more on annual surveys like the Annual Survey of Unincorporated Sector Enterprises and the Periodic Labour Force Survey to better measure the informal and household sectors. The ‘supply use table’ framework has been linked with national accounts to reduce gaps between production and spending estimates.
Sector-wise trends show mixed performance. The secondary sector is expected to grow 9.5% in FY26, up from 7.3% in FY25. Manufacturing is likely to grow 12.5% compared to 8.3% in the previous year, making it the main driver of growth. Construction growth is seen at 6.9%, slightly lower than 7.1% last year. The primary sector is expected to slow sharply to 2.8% from 5%. Agriculture growth may fall to 2.5% from 4.3%, while mining and quarrying growth is likely to decline to 5% from 11.2%. The services sector is expected to grow 8.9% in FY26, up from 8.3% in FY25. Trade, hotels, transport and communication may grow 10.3%, while financial, real estate, IT and professional services could expand 10%.
The revision has also changed past growth numbers. Under the new base, real GDP growth was 7.2% in FY24 and 7.1% in FY25. Nominal GDP growth for FY25 stood at 9.7%. In FY25, the primary sector grew 4.9%, the secondary sector 8%, and services 7.9%.
Although a base year revision does not change the real output of the economy, it updates the way data is measured. Because nominal GDP figures are now lower than earlier estimates, fiscal ratios have changed. Since the fiscal deficit is calculated as a share of GDP, a smaller GDP base pushes the ratio higher even if the deficit amount remains the same. The fiscal deficit for FY26 is now estimated at 4.51% of GDP compared to 4.36% earlier. Economists say that the deficit ratio for previous years may also be 15 to 20 basis points higher on average than earlier reported.
The debt-to-GDP ratio has also been affected. It is now estimated at 57.5% for FY27, higher than the earlier budget target of 55.6%. This means the government’s plan to reduce debt to 50% of GDP, plus or minus 1 percentage point, by 2031 will require stronger efforts.
The provisional estimates for FY26 along with Q4 data are scheduled to be released on May 29.
(Cover photo by Bhupathi Srinu on Unsplash)