India's 7.8% GDP Growth Masks A Crude Shock And Price Puzzle

By Dev Chandrasekhar

What? 

On 31 August, the Ministry of Statistics and Programme Implementation reported that India's economy grew 7.8% in the first April-June quarter of FY27 against 6.9% in the same quarter a year earlier. The Reserve Bank of India had projected 7.0% and a Reuters poll of economists 7.1%. By evening, the prime minister had a line about doomsayers being doomed.

Growth figures come in two versions. The first counts everything the economy produced at the prices of the day. The second strips out price rises to show how the economy actually grew in volume.

The 7.8% is the second kind, the constant-price or real figure. The first kind, at current prices, grew 10.3% in the same quarter. 

The gap between the two is the GDP deflator, the national accounts' own measure of how much prices rose across the whole economy, and for Q1 FY27 over Q1 FY26 it works out to 2.33%.

That is the number worth pausing on, because nothing else about the quarter looked like 2.3% inflation. 

Why? 

The wholesale price index, which tracks prices at the factory gate and the mandi, averaged about 9.3% year on year over April to June.

The consumer price index, which tracks the shop counter, averaged about 3.9%, with June at 4.38%.

Wholesale fuel and power were up 27% in June after the West Asia crisis pushed crude past $100.

India Inc spent the results season explaining how it had absorbed the spike. 

The accounts say prices across the economy as a whole rose at half the pace of the consumer basket.

The reason becomes clearer when the numbers are broken down.

Prices were rising sharply in much of the goods economy. Agriculture had an implicit inflation rate of 3.8%, compared with just 0.3% a year earlier. Mining was at 25%, construction at 8.2%, and the broad trade, hotels, transport and communications sector at 5.1%.

Together, these sectors should have pushed the economy-wide inflation measure higher. Instead, three parts of the accounts pulled it down.

The first was taxes and subsidies, the second is manufacturing and the third The third entry decides the headline. Financial services, real estate, ownership of dwellings, IT and professional services are grouped together in the accounts and make up a quarter of gross value added. 

Why It Matters 

The point is not that 7.8% is fabricated. Nominal GDP grew 10.3% in the quarter, and that is the figure that pays taxes and services debt. 

The point is that while the goods economy was visibly inflating, the accounts found almost no inflation in the largest part of the services economy, negative inflation in manufacturing and in the tax line, an import volume that shrank while capex boomed, and a discrepancy large enough to absorb the contradiction. 

Between them, those entries lifted the growth rate from about 7% to about 8%. And the growth rate itself, however computed, described an economy that made 7.8% more and earned perhaps 3.5% more, because the barrel it paid for cost more than the software it sold.

Want chef-crafted, dietitian-designed meals ready in 2 minutes?

Try Factor, America's #1 ready-to-eat meal delivery service.

Made from ingredients you recognize. Whole food. Nothing unnecessary. Let’s eat real.

Get 50% off your first Factor box + Free Breakfast for a year *1 free breakfast item per box for 1 year while subscription active.

Try Factor Now

1.76 lakh units

That's how many passenger vehicles Maruti Suzuki sold to dealers in the domestic market in August, a 35% rise from a year earlier. India's carmakers saw strong sales last month as festive season demand picked up. Sales were also higher partly because buyers had delayed purchases in August 2025, ahead of tax cuts.

Overview: Mahindra & Mahindra, Hyundai Motor India, and Tata Motors saw domestic sales rise 50%, 24%, and 59%, respectively.

Future: Sai Giridhar, President of the Federation of Automobile Dealers’ Association (FADA) told The Core that this festive season is expected to be a bumper one, as consumers have higher disposable income, attractive vehicle discount schemes are in place, and dealer stock is at a healthy level of 34-35 days.

Factory Growth Falters

India’s manufacturing growth slowed to its weakest pace in five years in August as softer demand weighed on new orders and output, according to the HSBC India Manufacturing PMI. The seasonally adjusted index fell to 52.8 from 53.5 in July, though a reading above 50 still signals expansion.

Fast Facts: New orders grew at their slowest pace in five years, while output also moderated. Export orders continued to rise, but at a slower pace than in July. The slowdown also hit employment, which declined marginally for the first time in 30 months as firms cited weaker business requirements.

The Lead: “India’s final manufacturing PMI slipped to 52.8 in August, extending its decline for a third consecutive month,” said Pranjul Bhandari, Chief India Economist at HSBC. She added that the output index fell to its lowest level since August 2021, signalling that production was still expanding but at a markedly slower pace.

Easing input-cost pressures offered some relief, while business confidence rose to its highest level since May, although sentiment remained subdued by historical standards.

Yet Another FDA Crackdown

Maharashtra’s Food and Drug Administration (FDA), led by IAS officer Tukaram Mundhe, has busted a racket that allegedly altered expiry dates and nutrition labels on packaged foods made by major brands including PepsiCo, Nestle, Coca-Cola and Unilever.

The Scoop: The FDA raided a warehouse in Navi Mumbai and seized goods worth nearly Rs 75.5 lakh, including Lay’s chips, Maggi noodles, Thums Up and Knorr soups. Officials found chemicals, printers and machines allegedly used to remove original manufacturing and expiry dates and replace them with counterfeit labels. Some products carried future manufacturing dates, while nutrition labels were also altered. The products were reportedly meant for export. The global companies whose products were found have not been accused of wrongdoing.

Context: The crackdown comes as Maharashtra steps up food-safety enforcement under Mundhe, who has led surprise inspections of restaurants and elite clubs. At the national level, the Food Safety and Standards Authority of India (FSSAI) has proposed front-of-pack warnings for foods high in sugar, salt and fat, reflecting a broader push for clearer consumer information.

IndiGo Flight Makes Emergency Landing

A Delhi-bound IndiGo flight carrying 229 passengers returned to Goa about 30 minutes after takeoff after one of its engines developed a snag, forcing an emergency landing at Manohar International Airport, PTI reported.

Background: Flight 6E 2102 departed Goa at 9:16 am and returned after the engine issue was detected. Air Traffic Control declared a full emergency around 9:30 am, with the aircraft landing safely on runway 28 at 9:51 am. No injuries were reported.

What Next? IndiGo said in a statement that the aircraft is undergoing maintenance checks and will resume operations after securing the necessary clearances. The airline also arranged alternative travel for passengers to reach Delhi.

The incident comes as Indian carriers face heightened scrutiny over operational issues and safety.

Chandra Repayment Plan Stayed

The National Company Law Tribunal (NCLT) has stayed its earlier approval of Zee Group founder Subhash Chandra’s repayment plan, which proposed paying Rs 6.25 crore to creditors against admitted claims of Rs 22,006.57 crore. The plan also allocated Rs 25 lakh towards insolvency-process costs.

Backdrop: A five-member NCLT bench said no clear majority view emerged from earlier orders on the repayment plan and stayed the August 25 order approving it. The original two-member bench had delivered conflicting views before a third member, Nilesh Sharma, later approved the plan. The three members, however, took materially different positions, leaving the tribunal without a majority view.

The Shift: The tribunal has issued notices to all parties and restrained Chandra, in his capacity as guarantor, from selling, transferring or otherwise dealing with his properties, directly or indirectly, while the case proceeds. The insolvency proceedings began in April 2024 after the NCLT admitted Indiabulls Housing Finance’s plea over guarantees Chandra provided for a loan to Vivek Infracon.

VinFast Stalls India Production

Vietnamese carmaker VinFast has apparently suspended plans to locally manufacture three electric vehicles (EVs) in India, namely the VF3, VF6 and VF7, and told suppliers to halt related work while it reviews costs, Reuters reported.

The Core earlier reported on how the surge in the company’s India sales is boosted by a fleet-led strategy, even though quality and aftersales concerns could test whether retail customer demand will sustain its momentum.

Catch Up Quick: A July memo asked suppliers to pause development and submit detailed accounts of investments made so far.

Setup: The EV maker, which entered India a year ago with a $2 billion investment pledge, imports the VF6 and VF7 as kits for local assembly and had planned to build the VF3 hatchback domestically as its most price-competitive model.

A free newsletter with the marketing ideas you need

The best marketing ideas come from marketers who live it. That’s what The Marketing Millennials delivers: real insights, fresh takes, and no fluff. Written by Daniel Murray, a marketer who knows what works, this newsletter cuts through the noise so you can stop guessing and start winning. Subscribe and level up your marketing game.

Sign Up Free

Indian Markets Feel Pressure Of Rising Oil Prices And Global Bond Yields

On Episode 966 of The Core Report, financial journalist Govindraj Ethiraj talks to Madhavi Arora, Chief Economist at Emkay Global as well as Gautam Shahi, Senior Director at Crisil Ratings.

SHOW NOTES

• Stories of the Day

• Indian Markets Feel Pressure Of Rising Oil Prices And Global Bond Yields

• India’s Strong GDP Showing Fails To Lift Markets

• India’s Rupee Hits Two Month High As Reserve Bank Brings Back Stability

• Why India’s Engineering Procurement Construction (EPC) Companies Are Having Their Moment In The Sun

• India’s Leading Jewellers Consolidate Even As The PM Appeals To Cut Back On Gold Purchases