India’s latest GDP numbers project confidence and momentum at a time of global economic uncertainty. Yet, almost simultaneously, the IMF’s ‘Grade C’ assessment of India’s national income accounting has exposed deeper institutional and structural gaps. Together, these two narratives capture a central paradox of the Indian economy today: rapid growth, but uneven foundations.
What the Latest GDP Numbers Reveal
India’s economy is operating at a markedly higher scale than last year, with output worth ₹48.63 lakh crore generated in a single quarter. Real GDP growth of 8.2% suggests that this expansion is not merely a post-pandemic rebound but part of sustained momentum. Manufacturing grew by 9.1%, indicating stronger industrial demand and higher capacity utilisation. Services — now contributing about 60% of GDP — expanded by 9.2%, led by financial services growing at over 10%, reflecting robust credit activity, digital transactions, and resilient urban demand.
Why the Growth Looks Broad-Based
Real Gross Value Added (GVA) rose from ₹82.88 lakh crore to ₹89.41 lakh crore, showing genuine increases in value creation across agriculture, industry, and services rather than inflation-driven gains. Nominal GDP growth of 8.8% reinforces that inflation remained largely under control. Private Final Consumption Expenditure grew by 7.9%, signalling improved household spending. Agriculture expanded by 3.5%, supported by better reservoir levels and horticulture output, hinting at modest improvement in rural incomes. Easing inflation toward the end of 2024–25 further strengthened purchasing power.
Macro Stability Beneath the Headline Growth
Banks entered this phase with clean balance sheets, strong credit growth, and capital buffers well above regulatory norms. Fiscal consolidation remained on track, aided by buoyant GST and direct tax collections, while public spending quality was largely preserved. Externally, India maintained stability with a manageable current account deficit, strong services exports, and diversified foreign exchange reserves capable of cushioning global shocks. On the surface, India appeared to be outperforming a slowing world economy.
The IMF’s ‘Grade C’ and What It Actually Means
The optimism was tempered when the IMF assigned India a ‘Grade C’ in its assessment of national income accounting systems. Importantly, this grading does not question India’s growth rate but evaluates the statistical architecture behind it. Key concerns flagged include the continued use of an outdated base year (2011–12), reliance on wholesale price indices instead of producer price indices, excessive use of single deflation methods, discrepancies between production- and expenditure-based GDP estimates, lack of seasonally adjusted data, and missing consolidated data on States and local bodies after 2019.
Why Fast Growth Can Still Mask Weaknesses
The unevenness within the growth story is visible even in a strong quarter. Electricity and utilities grew only 4.4%, while mining stagnated near zero growth. These backbone sectors are sensitive to weather shocks — such as an extended monsoon or a mild winter — but their weakness also highlights structural fragility in the industrial base. Sectoral shares underline a deeper mismatch: services contribute 60% of output, but employment remains concentrated in agriculture and low-productivity services. This disconnect limits broad-based income growth and productivity gains.
Structural Vulnerabilities Beyond the Numbers
The RBI has cautioned that India’s export prospects face headwinds from global protectionism, tariff uncertainty, and geopolitical tensions. Services exports and remittances provide resilience but cannot substitute for a diversified and competitive goods export engine. Financial markets reflect a similar contradiction. While the rupee appears stable, it remains vulnerable to global dollar strength and volatile capital flows. These pressures reveal that macro stability often relies on active management rather than deep structural strength.
Growth Versus Governance Capacity
The IMF’s assessment underscores a crucial distinction: GDP measures the pace of economic activity, not the quality of institutions that sustain it. India can grow at 8% and still face weak State-level data systems, low labour productivity, and governance gaps. In this sense, the 8.2% growth rate is the headline India presents to the world, while the ‘Grade C’ is the reminder that the institutional scaffolding beneath that growth remains incomplete.
What to Note for Prelims?
- India’s real GDP growth: 8.2%.
- Manufacturing growth: 9.1%; services growth: ~9.2%.
- IMF grading of national income accounting: Grade C.
- Key IMF concerns: outdated base year, deflators, data gaps.
- Sectoral GVA shares: primary ~14%, secondary ~26%, tertiary ~60%.
What to Note for Mains?
- Difference between high growth rates and institutional quality.
- Limits of service-led growth in a labour-abundant economy.
- Role of statistical systems in economic credibility.
- Structural constraints in exports, productivity, and employment.
- Why governance depth matters for sustaining long-term growth.
