MUMBAI: While economists have welcomed the new GDP series with fiscal 2023 as the base year for its wider coverage and data granularity, some of them have flagged the shrunken size of the economy having downside risks to both the fiscal consolidation road map as well as debt reduction targets.
The government on Friday released the new GDP series with fiscal 2023 as the base year. It also released the first growth estimate for the third quarter, which stood at 7.8%. In Q2 it had printed in at 8.2% which now has been revised upwards to 8.4% but Q1 has been revised down to 6.7% from 7.8% in the old series. Similarly GDP readings for the previous three fiscals are also lower than the old readings.
With the data for fiscals 2023 to 2025 getting revised downward materially as per the new base year, the size of the economy is estimated to be somewhat smaller than the 2011-12 base with the nominal GDP in FY24 and FY25 3.8% lower than estimated in the old series, while the second advance estimate for FY26 is 3.3% lower than the first estimate according to the old series, Aditi Nayar, the chief economist at Icra Ratings said.
“This implies that the fiscal deficit-to-GDP ratio would be 15-20 bps higher on an average during these years compared to the previous estimates. More importantly, this would also imply a fiscal deficit target of 4.46% for FY27, as against the 4.3% targeted in the budget 2027, assuming a nominal GDP growth of 10% in the fiscal,” Nayar said.
“This would also have some bearing on the debt consolidation roadmap, with the debt-to-GDP pegged 1.9 percentage points higher at 57.5% for FY27 as against the budgeted target of 55.6%, making the consolidation path unto FY31 relatively steeper than previously estimated,” she argued further.
Accordingly, Nayar now projects GDP to print in a healthy 7% in FY27, while the government projection is 7.4% amid favourable developments including the interim deal with the US with a lower tariff rate, improved prospects for domestic investment, aided by the robust hike in central capital spending included in the budget 2027.
Radhika Rao, senior economist at DBS Bank, said at first glance, the momentum in the rebased growth numbers appears to be marginally stronger than the previous trend for FY26, with methodological changes expected to have captured updated production structures, wider coverage of segments, new ratios, and representative/ improved government data sets, including to capture activity in the informal sector.
Beyond the current year, there are more significant changes in past growth numbers, especially with the FY24 real growth being revised down significantly, while FY25 was adjusted higher. Add to this, nominal GDP growth was revised down for the past two years and estimated to be higher in FY26, Rao said, adding that the savings and investment ratios also point to a stronger beat than previously assumed.
Echoing Icra’s views, Rao also said, “For the fiscal math, the size of the economy is modestly smaller than budgeted earlier, implying the pace of increase to reach the FY27 budgeted size will need to be stronger than the projected 10% to maintain the -4.3% of GDP target.”
Economists at Bank of America Securities said the new GDP series essentially represents a lowering of risks to growth and resiliency to both private consumption and private investment. While commodity prices are inching higher, even at current levels, we see room for monetary policy to stay accommodative.
Alexandra Hermann, the lead economist at Oxford Economics, said the GDP print exceeds consensus expectations, although the methodological changes mean that like-for-like comparisons are not straightforward.
“The improved capture of faster-growing segments of the economy suggests that the measured growth trajectory is likely to be structurally higher under the new series,” she said.
With food price volatility set to play a smaller role for headline inflation and measured growth stronger following the methodological revisions to both inflation and the national account series, further rate cuts look highly unlikely. In fact, firm demand pushing up core inflation skews risks toward a rate hike before end-2026, she concluded.
Vikrant Chaturvedi of Brickwork Ratings said the 7.8% growth underscores the economy’s sustained resilience, driven by robust manufacturing and services activity.
“The rebasing of national accounts is analytically significant as it captures structural changes in the economy, incorporates new data sets such as GST and updated surveys, and strengthens estimation methodologies by adopting internationally aligned practices. This ensures that growth estimates are more representative of the current economic structure, where digital services, modern manufacturing, and evolving consumption patterns play a larger role,” he said.
Echoing Nayar’s concerns, he also said, “From a fiscal perspective, the nominal GDP growth of 8.9% in Q3 provides a more favorable denominator for fiscal deficit and debt-to-GDP ratios. While this statistical improvement offers greater fiscal space, sustainability of the debt reduction trajectory will hinge on continued revenue buoyancy and disciplined expenditure management.”
Garima Kapoor of Elara Capital said the new GDP series suggests that there is an upside bias to manufacturing growth vs the old series but overall there is not a significant divergence between the two. "We continue to see FY27 growth at 7.1-7.2%," she said.
Maulik Patel of Equirus Securities said the robust manufacturing activity is noteworthy as it points to a strong domestic demand and export performance despite the tariff heat, especially in sub-sectors like electronics and engineering goods.