According to the Ministry of Statistics and Program Implementation, India’s gross domestic product (GDP) grew by 7.8% in the third quarter of the financial year 2025-26, covering the period from October to December. This calculation reflects a recent shift in the base year for GDP assessment, moving from the previous base year of 2011-12 to the more current base year of 2022-23. Utilising this updated framework, real GDP for the third quarter was estimated at a remarkable ₹84.54 lakh crore, up from ₹78.41 lakh crore in the same quarter of the preceding year.
Looking ahead, the government has revised its GDP growth projection for the financial year 2025-26 to 7.6%, a modest increase from the previously anticipated 7.1%. Additionally, nominal GDP is expected to grow by 8.6%. These figures are particularly striking, given that the 50% tariffs imposed by President Donald Trump were in effect during this period, along with substantial global economic uncertainty. Nonetheless, the resilience of domestic demand and the robust state of India’s manufacturing sector have contributed to these positive outcomes.
The new system for calculating GDP relies heavily on modern data sources, incorporating vital information from the Goods and Services Tax (GST) network, electronic vehicle databases, and comprehensive data on domestic workers, drivers, and home service providers. By adopting this innovative approach, the government aims to achieve a more precise and reliable assessment of the nation’s economic landscape. Not only will this new system provide fresh data, but it will also involve recalculating historical data using the new baseline, including back-series data dating back to 1950-51.
Typically, the base year for GDP assessments is revised every five years to reflect significant economic developments over time better. However, the onset of the COVID-19 pandemic, coupled with the effects of the GST implementation, delayed this update, and the prior base year had remained unchanged for 14 years. It failed to capture the emergence of key services, including the Unified Payments Interface (UPI), Zomato, various Over-The-Top (OTT) streaming platforms, and the ever-evolving gig economy. The fiscal year 2022-23 was chosen as the new base year due to a restoration of normalcy in economic conditions, following the subsiding effects of both demonetization and the pandemic. By that time, the Indian economy was experiencing stability and a rapid shift toward digitisation. Thus, selecting this year as the base year aims to reflect a period without significant economic fluctuations.
While it is evident that altering the base year may not trigger immediate changes in the economic circumstances of the average individual, it will empower the government to develop more informed and effective policies underpinned by accurate data. Such strategic policymaking is expected to promote targeted investments and attract foreign capital, thereby gradually benefiting ordinary citizens. Countries like the United States, the United Kingdom, and China routinely update their base years to enhance the reliability of their economic data.
The base year serves as a pivotal reference point in economic analysis because it assumes constant prices, facilitating the assessment of the current economic climate. This method enables economists to more clearly delineate the economy’s actual growth rate by isolating the impact of inflation. For instance, if a pen were priced at ₹10 in 2011 and has since risen to ₹20, while the production level remains unchanged at 100 pens, the GDP for 2011 would be ₹1,000. In contrast, the current GDP, reflecting the higher price, would be ₹2,000. Thus, the concept of the base year is essential for determining whether an increase in GDP reflects genuine growth in production or merely escalated prices.
GDP represents the aggregate value of all goods and services produced within a country’s borders over a specified timeframe. This comprehensive measure encompasses production activities undertaken not only by domestic Indian enterprises but also by foreign companies operating in India, reflecting a broad spectrum of economic activity. Frequently regarded as a “report card” for the economy, GDP serves as a crucial indicator of a nation’s financial health.
There are two primary categories of GDP: real GDP and nominal GDP. Real GDP is adjusted for inflation using fixed prices from a designated base year. This adjustment offers valuable insights into genuine growth in production over time, free from distortions caused by changing price levels. In contrast, nominal GDP is influenced by current market prices, so any rise in prices due to inflation will also lead to an increase in nominal GDP, regardless of underlying changes in production.
Recently, significant enhancements have been implemented in the methodology for calculating GDP. One notable improvement is the adoption of a method known as double deflation, which will specifically affect the agriculture and industry sectors. This approach aims to provide a more nuanced measure of output by accounting for price changes more sophisticatedly. Additionally, there is a concerted effort to incorporate data from the unorganised sector, which has historically been challenging to quantify. By including findings from annual surveys of this sector, analysts hope to gain a more comprehensive understanding of economic contributions beyond the formal economy. Furthermore, leveraging updated labour survey results, the Goods and Services Tax (GST), and other government data will enhance the overall accuracy of GDP calculations.
Another critical reform involves a more meticulous distinction between the manufacturing and service sectors, enabling finer classifications of production activities. This segregation is expected to yield insights that more accurately reflect the economy’s complexity rather than merely aggregating all activities into broad categories.
Notably, the most significant changes in real GDP growth projections have emerged for the fiscal year 2023-24 under the new base year of 2022-23. Initially, the growth rate was estimated at 9.2% based on the earlier base year of 2011-12; however, this figure has been revised downward to 7.2%. Similarly, revised growth projections for 2024-25 have been set at 7.1%, an increase from the previous forecast of 6.5%. For the fiscal year 2025-26, the second advance estimates predict a GDP growth of 7.6%, slightly higher than the 7.4% projected in the 2011-12 series. These adjustments are reflected not only in GDP but also in gross value added (GVA) figures, indicating a broader trend in economic assessment.
In summary, the decisive implementation of a new base year and the accompanying methodological improvements will enhance the accuracy of GDP data collection—an essential factor for fostering national development. With precise economic data, governmental bodies can formulate effective economic policies, and citizens can make well-informed investment decisions. It is also worth noting that despite external challenges such as tariffs imposed during Trump’s presidency and the methodological changes, the resilience of the country’s growth rate points to an underlying economic robustness.
Satish Singh is a Senior Banking and Economic Columnist based in Mumbai. The insights in the article reflect his personal views and analysis.
