Q1 FY27 GDP Growth Overstated; Growth Could be 5 -5.5%

“Despite adopting the double-deflation methodology, the latest GDP data once again shows a significant deflator anomaly. In Q1FY27, nominal GDP grew by 10.3% while real GDP growth was reported at 7.8%, implying a GDP deflator of just 2.5%. This appears inconsistent with the CPI inflation averaged 3.9% and WPI and PPI averaged around 9.4% and 9.2%, respectively during the quarter. Deflator growth lower than reported inflation raises the possibility that real GDP growth may be overstated,” found Systematix Group.

This deflator anomaly has persisted over multiple quarters, indicating that real GDP and real consumption growth are likely overstated and that a more realistic “underlying” real growth range for Q1FY27 is 5–5.5%, it said.

Under the double-deflation framework, output and intermediate inputs are deflated separately using more granular price indices. Conceptually, this was intended to eliminate the distortions associated with the earlier methodology of single deflator, which predominantly used WPI as a common deflator for both output and input cost.

The agriculture and bulk of manufacturing separately deflate gross output and input cost with a granular set of 500-600 CPI and WPI components. For remaining sectors, volume or single extrapolation is used. Consequently, this removes the possibility of GDP deflator to drift below both CPI and WPI inflation and ensures that the deflation lies between the CPI and WPI inflation.

However, the latest data suggests otherwise. When the implied weights needed to reconcile the reported 2.5% deflator is back calculated with prevailing CPI and WPI/PPI inflation yields roughly 126% weight on CPI and -26% on WPI/PPI. Similar inconsistencies have persisted over the last four quarters, extending the anomaly into FY26 GDP estimates as well.

Till Q1FY26 the implied composition of the deflator had average weights of around 46% for CPI and 54% for WPI. Applying those same weights to current inflation readings would produce a GDP deflator of 6.9%, rather than the reported 2.5%. Under such an assumption, real GDP growth in Q1FY27 could be much lower than the stated 7.8%; even with a liberal de-facto deflator of 6% the real GDP growth could come down to 4.3%.

The private consumption deflator of 2.8% also appears low relative to household inflation perceptions and retail price trends, suggesting that real consumption growth may be overstated. Likewise, the deflator for the manufacturing sector, estimated at -1.5% for 1QFY27 appears out of sync with the broader manufacturing sector inflation of 7.3% as per the WPI estimate. With nominal manufacturing GVA growth of 7.7%, the real manufacturing GVA growth is probably much weaker than the 9.2% print for Q1 FY27.