7 Things That Changed When India Recounted Its Economy

After an 11-year gap, India released its new GDP series on a 2022-23 base year, replacing the 2011-12 baseline.

In a conversation with Swarajya, Kanika Pasricha, Chief Economic Advisor at Union Bank of India, unpacked the key shifts—a move to double deflation, a tripled deflator basket, wider data coverage through GST returns and enterprise surveys—and what they mean for growth, fiscal math, banking, and credibility. Here are the seven things that matter.

1. India’s economy just got ₹10 lakh crore smaller—and that’s fine

Nominal GDP for FY26 has been revised downward from about ₹357 lakh crore to ₹347 lakh crore. But real GDP has been revised upward by about ₹100 lakh crore.

Under the old method, a single deflator—a somewhat arbitrary mix of WPI and CPI—was applied to both inputs and outputs. This overstated the price adjustment in sectors like manufacturing, where producer price inflation had been trending consistently downward. The new series uses double deflation: separate deflators for inputs and outputs, drawn from a basket that’s expanded from roughly 180 items to 500–600. Oil and commodity prices were falling on an average basis in recent years, and that had to show up as higher real manufacturing output. The old series missed it. The new one captures it.

While the nominal GDP level is lower, the nominal GDP growth rate is actually higher than earlier estimated—around 8.6 per cent for FY26, versus 8 per cent in the old base, and 8.9 per cent for the December quarter. Pasricha noted this fits much better with the double-digit credit growth that banks have been reporting.

2. Manufacturing was hiding in plain sight

Manufacturing has seen a threshold shift of three to four percentage points in the new base versus the old. For the December 2024 quarter, manufacturing growth came in above 13 per cent—a striking figure.

The implication, as Pasricha put it, is that India’s growth was not being driven by services alone, as widely assumed. Industry, and manufacturing in particular, was showing strong momentum that the old series failed to capture. Better coverage of the informal sector—specifically MSMEs—through GST data, vehicle sales, and enterprise surveys drove this upward revision.

3. The 9 per cent growth that became 7—and why that’s more credible

FY24 growth, which stood at 9.2 per cent under the old base, has been revised to 7.2 per cent. FY25 moved from 6.5 per cent up to 7.1 per cent. FY26 has been revised from 7.4 to 7.6 per cent. India’s potential GDP growth now centres around 7 per cent on the real side, with a slight upward bias.

Pasricha called this normalisation a positive: the 8s and 9s of the old base get replaced by a trend growth of 7 per cent, which looks more realistic and credible. The Economic Survey had already pointed towards this shift in potential growth, and the data now confirms it. FY25 is particularly interesting—most economists had pegged growth under 6.5 per cent, but the new series came in line with the RBI’s 7-per-cent-plus estimate.

4. The $4 trillion economy is now a $3.93 trillion economy

India had begun calling itself a $4 trillion economy. The new series puts FY26 at about $3.93 trillion, pushing the milestone to FY27. Overtaking Japan as the fourth-largest economy may be delayed by a year or so.

Pasricha’s view: credibility of data matters more than a milestone in an uncertain world. India moved from the 10th to the 5th largest economy between 2014 and 2022; the trajectory towards third-largest by FY29-30 remains broadly intact. The main casualty is optics.

5. The fiscal deficit just got 15 basis points worse

A smaller nominal GDP mechanically pushes up fiscal ratios. The budget’s fiscal deficit target of 4.36 per cent of GDP now becomes 4.51 per cent—a 15-basis-point hit. Against the government’s stated goal of maintaining 4.4 per cent, this translates to a roughly 10-basis-point headache, or about ₹34,000–35,000 crore.

Pasricha assessed this as manageable, given scope for expenditure rationalisation in revenue spending, excluding salaries and interest payments. Debt-to-GDP similarly inches up. But the key debt sustainability metric—the gap between nominal GDP growth and the average interest rate on government debt—remains comfortably in the government’s favour. The average interest payment is around 7 per cent, while nominal GDP growth is projected at 10–10.5 per cent for FY27.

6. MSMEs are doing better than feared—and banks should notice

The broad-basing of growth has direct implications for lending. If manufacturing, and by extension the MSME sector—the largest borrower segment for banks today—is doing better than previously measured, the risk of slippages in that segment is lower than feared. MSME credit growth currently runs at about 20 per cent, even as large corporate credit struggles to reach double digits.

The upward revision in private capex is similarly significant. In the old series, gross fixed capital formation ran at about 31–32 per cent of GDP. In the new series, it is around 34–34.5 per cent, with private capex specifically rising from about 8.9 per cent to 10–10.5 per cent. Pasricha noted this opens the door for banks to look beyond the usual suspects—renewables, solar, data centres, semiconductors—to identify other sectors showing genuine capex momentum.

That said, she stressed that GDP data is backward-looking. With global uncertainty rising, including geopolitical disruptions and volatile commodity prices, the Goldilocks scenario of the last year may not repeat. Banks need to strengthen project appraisals and exercise caution.

7. One puzzle nobody can explain yet

Manufacturing’s threshold shift upward, attributed to better informal sector coverage, suggests MSMEs and the broader informal economy are doing well. But public administration and other services—which also include informal sector activities like tailoring, laundry services, and beauty parlours—saw growth revised downward. Manufacturing went from around 9 per cent to 13-plus per cent; services in this category were downgraded from 9–9.5 per cent to around 7 per cent.

Pasricha flagged this divergence as something she wants to understand better. With GST rate cuts, income tax cuts, and overall economic activity, even technology-based service platforms should have seen positive momentum. Whether subsequent quarterly data or the MCA-based annual revisions resolve this disconnect remains to be seen. The back series, which would allow meaningful historical comparison, will not arrive until December 2026.

Based on: “What This Means” podcast conversation between Diksha Yadav and Kanika Pasricha. Full episode available on Swarajya’s Spotify and Apple Podcasts.