Modi's Ex Chief Economic Advisor: India's Economy is 22% to 31% Smaller Than Official Claim

New research by several economists, including India's former Chief Economic Adviser Arvind Subramanian, finds that the country's GDP has been overstated by 22% to 31%. It says: "The level of (India's) real GDP is overstated by about 22% and the level of consumption by about 31%". "India's economy is thus smaller and the average standard of living significantly lower than official estimates indicate", it adds. The current GDP of India is less than $3 trillion, according to the authors. 

Indian GDP Overstated by 22% to 31%. Source: PIIE 

In a paper published by Peterson Institute for International Economics, the authors state that "India’s annual economic growth during the boom years between 2005 and 2011 may have been underestimated by about 1–1½ percentage points on average, and subsequent growth between 2012 and 2023 may have been overestimated by about 1½-2 percentage points".  It means that India's actual annual GDP growth during Prime Minister Modi's government has been closer to 4%, not 6% as officially claimed. Pakistan's GDP growth rate has been about 3.5% during this period. 

The authors explain that the estimation error is caused by two methodological issues. The first issue leading to the misestimation is that the economy’s formal sector has been used as a proxy for the vast informal sector, even though the latter was disproportionately hit after 2015 by demonetization, the introduction of the goods and services tax, and the COVID-19 pandemic. The second issue causing misestimation is that the deflators for many sectors have been based on commodity prices, which have moved sharply relative to others.

Ruling politicians in New Delhi continue to hype their country's economic growth even as the Indian currency hits new lows against the US dollar, corporate profits fall, electrical power demand slows, domestic savings and investment rates decline and foreign capital flees Indian markets. The International Monetary Fund (IMF) has questioned India's GDP and independent economists Professors Arun Kumar and Ashoka Modi and investment banker Ruchir Sharma have detailed why the Indian official data can not be trusted. It seems that the BJP-led government of Prime Minister Narendra Modi is fast losing credibility by politicizing the civilian bureaucracy and the military brass to project their economic and military failures as successes.

IMF Gives C Grade to India's GDP Data

Beyond the disputed claim of being the "fourth largest economy", the Modi government's failure on the national health and wellness front is also getting more attention. “Air is unbreathable. Water is undrinkable. Food is adulterated. What’s the point of becoming the 4th largest economy?” asked India-American technology entrepreneur Sabeer Bhatia in an X message recently. Gita Gopnath, Harvard professor of economics, said at the World Economic Forum in Davos this week that the economic impact of pollution on India is more severe than the effects of tariffs imposed on the country. “About 1.7 million lives are lost every year in India because of pollution. That’s 18% of the total deaths in India,” Gopinath said, quoting a World Bank study. “Even from an international investor’s perspective … the pollution holds you back.”

Unsafe Drinking Water in India Claimed as 4th Largest Economy. Source: DownToEarth

An international badminton tournament in India has brought global spotlight on the lack of basic hygiene in India.  Foreign players complained about dusty floors, dirty courts, bird droppings and unhygienic conditions at the India Open in New Delhi. “I think the floors are dirty. There is a lot of dirt on the courts. There’s bird excrement. There are birds flying around in the arena,” said  28 year-old Denmark women’s singles player Mia Blichfeldt. Andres Antonson, world number three badminton player, withdrew from the India Open Super 750 in New Delhi for the third consecutive year, choosing to pay a $5,000 fine. He cited "extreme" hazardous air pollution in Delhi as the reason for skipping the mandatory tournament, arguing it is not a safe place to hold the event. 

The IMF has recently expressed doubts about Prime Minister Narendra Modi's BJP government's GDP data. It has particularly questioned the government's statistical methodologies, inflation measurement, and the estimates of the informal economy used in reporting the country's gross domestic product. Professor Arun Kumar of Jawaharlal Nehru University believes the IMF's concerns are valid. He thinks the real size of India's economy is only half of what is officially claimed.  “The economy is almost 50% wrong – when the government says it’s $3.8 trillion, my estimate is it is probably still $2.5 trillion because we are overestimating the unorganized sector, which is actually declining. This is building up over a period of time,” Kumar told Indian journalist Karan Thapar. 

In its recent assessment, the International Monetary Fund (IMF) has given a "C" grade to India's national accounts. In particular, the IMF has raised the issue of the government using 2011-12 as the base year as being outdated, the discrepancy between production and consumption data and the use of Wholesale Price Index, and not a Producer Price Index, to deflate many economic activities to derive real GDP from nominal GDP. 

Indian Firms Falling Corporate Profits. Source: Bloomberg 

Corporate profits of Indian firms are growing at a much slower pace than the 8.2% GDP growth in its most recent quarter. Net income for Nifty 50 Index firms likely rose 1.1% in the three months through Dec. 31 from a year earlier, according to analyst estimates compiled by Bloomberg. That would be the slowest pace in five quarters, weighed down by deteriorating margins for banks. Falling profits and declining currency are causing foreign capital to flee Indian markets. Foreign Portfolio Investors (FPIs) pulled out over $20 billion from Indian equities in 2025, marking a severe, sustained withdrawal that has continued into 2026.  Net Foreign Direct Investment (FDI) has seen consecutive monthly outflows, including $1.67 billion in October and $446 million in November 2025. Investment banker Ruchir Sharma wrote about it in a Financial Times op ed titled "India needs to import more capital and export fewer workers". Ruchir wrote: "Most strikingly, corporate revenue normally grows (or shrinks) with the economy — in any country. But last year corporate revenue growth for listed companies in India decelerated to barely half the GDP growth rate"

Falling Indian Rupee. Source: Reuters

The source of the biggest error is the way India estimates the informal economy which, including agriculture, accounts for almost 45% of GDP. To do so, India uses the formal sector as a proxy to estimate the performance of the informal sector. But if the two sectors are moving in opposite directions, as has happened after demonetization, GST imposition and the pandemic, you could end up overestimating the unorganized sector.

Indian-American economist Ashoka Mody, author of "India is Broken", has argued that the current unemployment crisis in India is a direct result of the destruction of the informal sector, particularly the mom and pop stores that employed a large number of Indians. 

Questions about the veracity of India's official GDP figures are not new. These have been raised by many top economists. For example,  French economist Thomas Piketty argues in his best seller "Capital in the Twenty-First Century that the GDP growth rates of India and China are exaggerated.  Picketty writes as follows:

"Note, too, that the very high official growth figures for developing countries (especially India and China) over the past few decades are based almost exclusively on production statistics. If one tries to measure income growth by using household survey data, it is often quite difficult to identify the reported rates of macroeconomic growth: Indian and Chinese incomes are certainly increasing rapidly, but not as rapidly as one would infer from official growth statistics. This paradox-sometimes referred to as the "black hole" of growth-is obviously problematic. It may be due to the overestimation of the growth of output (there are many bureaucratic incentives for doing so), or perhaps the underestimation of income growth (households have their own flaws)), or most likely both. In particular, the missing income may be explained by the possibility that a disproportionate share of the growth in output has gone to the most highly remunerated individuals, whose incomes are not always captured in the tax data." "In the case of India, it is possible to estimate (using tax return data) that the increase in the upper centile's share of national income explains between one-quarter and one-third of the "black hole" of growth between 1990 and 2000. "

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