Our Peculiar Obsession with GDP Growth

I paid ₹1,770 for a 12 kg LPG cylinder last month.

I have no idea what that tells us about India's GDP. Probably very little. It is one household, one purchase, one price. But when I hear that India's economy grew by 7.8% in the first quarter of 2026-27, I find myself thinking about that ₹1,770. Not because the price of an LPG cylinder can somehow disprove a GDP estimate, but because it represents the economy as most of us encounter it: through the prices we pay, the income we earn and the choices we make about what we can and cannot afford.

The 7.8% figure belongs to a very different world. It is an estimate of the growth in the value of economic activity across an economy of 1.4 billion people. It is produced by an elaborate statistical system and expressed as a single number. But that number quickly acquires a significance far beyond what it actually measures. GDP growth becomes evidence that the economy is healthy; economic health becomes evidence of national progress; national progress becomes evidence that the government is performing well. Before long, a number describing economic output has become a shorthand for the performance of a political party.

The controversy around the latest figures provides a useful opportunity to look at what sits behind the headline. India's 7.8% growth rate for the first quarter of 2026-27 has attracted criticism partly because the estimate for the corresponding quarter of the previous year was revised downwards. Since this year's growth is calculated against last year's figure, a lower base will, all else being equal, produce a higher growth rate.

There is another issue in the conversion from nominal to real GDP. Nominal growth has been reported at around 10.3%, while the implied GDP deflator is around 2.5%, producing the headline real growth rate of 7.8%. The GDP deflator – based on a complex double-deflation methodology – is not the same as the consumer price index, so it would be wrong simply to substitute one for the other and declare the GDP number invalid. They measure different things. But the difference does matter when we try to connect a national accounting statistic with economic life as experienced by households. The prices that matter when calculating the real growth of the economy are not necessarily the prices that matter to someone deciding whether this month they can afford the same basket of goods and services as last month.

Then there is the question of how quarterly GDP can be estimated at all.

India's economy is far too large and complex for the government to collect comprehensive information about every transaction every three months. Instead, the Ministry of Statistics and Programme Implementation uses the previous year's estimates as a benchmark and a range of high-frequency indicators to estimate what is happening in the current period. These include industrial production, GST collections, vehicle sales, steel and cement consumption, air passenger traffic, railway freight and bank credit.

This is a sensible response to an impossible data-collection problem. But in India, where around nine out of ten workers are in informal employment, this benchmark-indicator approach can skew the data.

The formal economy leaves records everywhere. Companies file accounts, banks record transactions, factories report production, vehicles are registered and businesses collect GST. The informal economy is much harder to observe in real time.

That does not mean that informal economic activity disappears from GDP. Economic activity is interconnected, and a change in formal-sector activity can have consequences throughout the economy. But it does mean that a very large proportion of the economic lives of Indian workers is being inferred rather than directly observed when quarterly estimates are constructed.

A rise in vehicle sales tells us something about economic activity. So does an increase in GST collections, bank credit or air passenger traffic. But these are not direct measurements of whether the agricultural labourer, the street vendor, the domestic worker, the casual construction worker or the small shopkeeper is better off.

This is where I think our peculiar obsession with GDP growth becomes difficult to defend. GDP is a measure of economic output, but we routinely use it as though it were a measure of economic wellbeing. We talk about a growing economy as a healthy economy, a healthy economy as a prosperous society, and prosperity as evidence of national progress. But economic output and economic wellbeing are not the same thing.

GDP does not tell us how the gains from growth are distributed. It does not tell us whether household incomes are rising faster than the cost of living. It does not tell us whether employment is secure or precarious. It does not tell us whether a family has greater economic security than it did a year ago.

Most importantly, GDP does not distinguish between economic activity that improves people's lives and economic activity that is generated by problems we would rather not have. Cut down a forest and sell the timber, and the resulting economic activity contributes to GDP. Leave the forest standing, providing carbon storage, biodiversity, water regulation and countless other benefits, and most of that value does not appear in GDP.

A parent caring for a child at home generates no market transaction. Pay someone else to provide the childcare and the transaction enters the national accounts. Pollute a river and then spend money cleaning it up, and the expenditure contributes to economic activity. The GDP number has no mechanism for telling us that the second transaction was necessary because of damage caused by the first.

None of this makes GDP arithmetic wrong. It tells us something about the nature of the measure itself. GDP is concerned with the value of goods and services produced and exchanged in the economy. It was never designed to tell us whether those goods and services are contributing to a better life.

There are other ways of thinking about economic wellbeing. The United Nations' Human Development Index, for example, combines income with measures of health and education. The OECD's Better Life approach looks at a broader set of dimensions including income, housing, work, health, education, social connections, civic engagement, safety, life satisfaction and the environment. These measures have their own limitations, but they begin with a different question: not simply how much economic activity is taking place, but whether that activity is translating into better lives. Perhaps that is the question we should be asking more often.

When we hear that India's GDP has grown by 7.8%, what should we actually conclude?

We can reasonably conclude that the statistical estimate indicates strong growth in economic output. We can debate how reliable that estimate is, how much the revised base contributes to the headline number, whether the deflator adequately captures the relevant price changes, and how effectively the available indicators capture an economy in which around nine out of ten workers are informally employed.

But we cannot leap from 7.8% to "India is doing well" without making several additional judgments, none of which are not contained in that number.

I paid ₹1,770 for an LPG cylinder last month. That number tells us almost nothing about India's GDP. But neither does India's GDP growth tell us very much about whether my household is better off, whether the small shop down the road is thriving, or whether the millions of Indians working outside the formal economy are experiencing the benefits of growth.

I think we should be a little less obsessed with whether GDP is growing at 7.8%, 6.8% or 5.8%, and a little more interested in what that growth is doing for the economic lives of the people who make up the economy.

Because in the end, an economy is not a number. It is people buying things, selling things, making things, growing things, building things, caring for one another, finding work, losing work, taking risks, paying bills and deciding what they can afford. The number is supposed to help us understand that activity.

We should be careful not to mistake it for the activity itself.