Politicians have always been famous for manipulating the truth or lying by telling the truth. For example, consider this. A journalist asked a minister, “Have you provided employment to the youth as per your election promise?” The minister answered, “we have given employment letters to 70000 youth last week”.
Here the minister is telling the truth (70000 employment letters given), without answering the question. He did not even clarify whether these 70000 youth have actually been given jobs or just been promised a job in the future. In this way, the minister lied by telling a plain truth- manipulated it to suit his convenience.
A similar pattern often plays out in economic statistics, where data may be technically correct but presented in a way that conveys a misleadingly optimistic picture.
The blockbuster GDP data for 1QFY26, released by the National Statistics Office (NSO) last Friday, prima facie appears an example of manipulated truth. According to NSO, the Indian economy recorded real GDP growth of 7.8% in 1QFY26, over and above 7.4% recorded in 4QFY25. The reported growth rate is far above the estimates of RBI and the professional forecasters.
Key highlights of GDP Data for 1QFY26
Basic data
Real GDP Growth: 7.8% in 1QFY26, compared to 7.4% in 4QFY25 and 6.5% in 1QFY25.
GDP at Constant Prices Rs. 47.89 lakh crore in 1QFY26, up from Rs. 44.42 lakh crore in 1QFY25.
Nominal GDP Growth: 8.8% in 1QFY26, compared to 9.8% in 4QFY25 and 9.7% in 1QFY25.
Nominal GDP in Q1FY26 is estimated at ₹86.05 lakh crore (US$975bn at today’s exchange rate), against ₹79.08 lakh crore (US$943bn at 1st September 2024 exchange rate) in 1QFY25.
Real GVA Growth: 7.6% in 1QFY26, compared to 6.4% in 4QFY25 and 6.5% in 1QFY25. Real GVA was Rs. 44.64 lakh crore in 1QFY26, compared to Rs. 41.47 lakh crore in 1QFY25
Demand side performance
Private consumption demand slows: Private Final Consumption Expenditure (PFCE) grew by 7.0% in 1QFY26, compared to 7.6% in 4QFY25 and 8.3% in 1QFY25.
Investment demand strong: Gross Fixed Capital Formation (GFCF) grew by 7.8% in 1QFY26, compared to 7.3% in 4QFY25 and 6.7% in 1QFY25.
Government consumption rises: Government Final Consumption Expenditure (GFCE) grew by 9.7% in 1QFY26 (nominal terms), compared to 4.4% in 4QFY25 and 4.0% in 1QFY25.
Notably, 1QFY25 was election quarter and the model code of conduct was in effect for much of the period.
Supply side performance
Services: GVA up 9.3% in 1QFY26, from 6.8% in both 4QFY25 and 1QFY25. Boosted by exports, financial services, government spending, and the digital economy.
Construction: GVA up 7.6% (vs. 8.6% in 4QFY25, 7.0% in 1QFY25), supported by infrastructure investment but moderated by seasonal factors.
Manufacturing: GVA up 7.7% (vs. 3.5% in 4QFY25, 2.2% in 1QFY25). Recovery driven by domestic demand, production-linked incentives, and improved export orders (HSBC PMI at 58.4 in June 2025). Low base effect also helped.
Agriculture: GVA up 3.7% (vs. 3.8% in 4QFY25, 1.5% in 1QFY25). Better Kharif sowing conditions supported growth despite a 5.6% monsoon deficit in 2024.
Mining & Quarrying: GVA down -3.1% (vs. +1.4% in 4QFY25, -0.01% in 1QFY25), hurt by weak global demand and domestic bottlenecks.
Utilities: GVA up just 0.5% (vs. 3.0% in 4QFY25, 10.5% in 1QFY25), reflecting weaker energy demand and delays in renewable project
Material divergence from expectation
The 7.8% real GDP growth in 1QFY26, driven by services (9.3%), manufacturing (7.7%), construction (7.6%), and agriculture (3.7%), was well above RBI and analyst estimates of 6.5–7.0%. Weakness in mining and utilities moderated the overall picture, but the outcome still exceeded consensus by 0.8–1.3 percentage points.
Apparent reasons for divergence
Manufacturing rebound: Analysts expected ~5%, but the sector delivered 7.7%.
Government spending: GFCE grew 9.7%, far above expectations of modest increases.
Agriculture: Growth of 3.7% (vs. ~2.5–3.0% expected), though actual yields may revise this down later.
Services: Tertiary sector expanded 9.3% (vs. ~7.0% expected), on strong exports and financial services.
The true lie
In my view, the base effect, discrepancies in data collection that are corrected later through revision of data are regular factors and should not raise doubt about the integrity of the GDP data.
However, what stands out in this quarter’s data is GDP deflator – the inflation factor used to convert nominal GDP into real GDP.
· In 1QFY26, the deflator was just 0.9%, compared to 3.1% in 4QFY25.
· The low deflator boosted real GDP growth by roughly 2 percentage points versus what it would have been with a 3.1% deflator.
· Real GDP growth (7.8%) thus appears unusually strong, even though nominal GDP growth slowed both year-on-year and quarter-on-quarter.
This matters because corporate profits, tax collections, private consumption, and the current account deficit (CAD) all track nominal GDP, not real GDP. Slower nominal growth implies weaker profits, lower revenues, softer consumption, and a higher CAD ratio.
It is therefore unsurprising that financial markets have shown little enthusiasm for the GDP “surprise.” Government bond yields have edged back to pre-budget levels (despite a 50bps repo rate cut), and the INR has slipped to its lowest ever level.
Yes, 1QFY26 real GDP growth is surprisingly high—but it would be misleading to present it as evidence of a booming economy. Beneath the headline number, the economy still faces strong headwinds: new US tariffs, climate catastrophes in Punjab, J&K, Himachal Pradesh, and Haryana, and a steady erosion of foreign investor confidence (reflected in weak FDI and negative FPI flows).
