Full Text | Former Finance Secretary Subhash Chandra Garg on the Problem With India’s GDP Growth

‘If growth is genuine and distribution is broadly fair, consumption should be rising accordingly.’

Former finance secretary Subhash Chandra Garg recently spoke, in a widely watched video, of the distress among the wage-earning class, whose incomes do not seem to have grown in real terms over the years. What’s more, eight to nine crore youth are out of the employment market. Therefore, there is a need to investigate whether the gross domestic product (GDP) is actually growing at the rate that is being officially claimed. In his interview with M.K. Venu, Garg broke down the real picture. 

The full text of the interview, transcribed by Ramsha Sartaj, an editorial intern at The Wire, follows.

M.K. Venu: Hello and welcome to this episode of The Wire MKV 360. Today we will discuss something that has been hotly debated over the last 48 hours: is India indeed the highest-growth economy in the world? The background is this: we had quarterly GDP data for the first quarter, April to June 2026-27, released a couple of days ago. The GDP data for that first quarter turned out to be 7.8%, which created a lot of excitement within the government. Prime Minister Modi went on Instagram, mind you, Instagram, and said these were good tidings for India, and so on. 

However, the critics of the government, or the critics of the way the economy is being run, not just critics, even erstwhile supporters who have now turned critics, were not satisfied with the explanation that came after the GDP growth figures were released. The explanation was that India had turned the corner, that India had become resilient. 

Many experts pointed to a deeper question: what is the purpose of being the fastest-growing economy in the world? Even assuming you agree with the methodology and the GDP calculation of 7.8%, the purpose ought to be that people earn more income. It should translate into broader income growth in the economy, broader savings growth and broader consumption growth. 

The fact is, I am also in the same camp. I agree with those who say that 7.8% GDP growth is not reflected in the incomes of people at the bottom, say, the bottom 75-80% of the population, whose real incomes have not grown in the last six or seven years. This is shown by the Periodic Labour Force Survey, or PLFS, and other metrics indicating that people are in distress. 

India’s savings pool has been shrinking and, according to the RBI, is at a 45-year low. When savings are this low, household debt, conversely, is at its peak. So people are borrowing in order to consume.

Now, to understand the significance of this GDP growth data, we have with us Mr Subhash Garg, a former finance secretary. Having served in government and having been a prominent policymaker in the Modi government until 2019, he is well placed to explain and offer his perspective on these growth figures. He is also the author of several books drawn from his experience, books we have discussed and written about on The Wire. Welcome to this discussion, Mr Subhash Garg.

Subhash Garg: Venu, an initial remark: I am not in any camp, and I am not a critic per se. I simply try to assess everything objectively. You said you are in one camp, that is your prerogative, but I always try to be as objective as possible.

M.K. Venu: No, Mr Garg, what I meant was that I was honestly placing myself in the camp that believes GDP growth data is not translating into broader well-being. That is what I was saying. Now, I would like you to explain how you view these growth figures. I have heard you argue on other channels that the numbers could also be something of a statistical illusion, a view shared by several other economists. I mean economists who work with major banks in Mumbai. Could you tell us how you look at it?

Subhash Garg: I think this story is fairly well known by now, and it would have been better to move straight into questions. But let me summarise briefly. The GDP growth in real terms was 7.8%; in nominal terms, 10.3%. That is what the Q1 data released on 31st August indicated. As we all know, GDP is actually calculated in current prices first. You take corporate balance sheets, government data, banking data, and other information, all in current prices, and calculate the current, or nominal, GDP. Thereafter, you apply an inflation deflator to arrive at the real GDP. In other words, real GDP is not calculated directly; that is the point I would like your viewers to understand.

This year, the claim of 7.8% real GDP growth, based on an underlying nominal GDP growth of 10.3%, implying a deflator, or inflation element, of about 2.5%, needs closer scrutiny. To understand the reality of these numbers, you have to relate them to the previous year’s GDP, both current and real. If you look at last year’s first-quarter GDP, the government’s figure released last year on 30th August was Rs 86 lakh crore. This has now been revised down to Rs 80 lakh crore, a downward revision of six lakh crore for last year’s first quarter. So we have Rs 80 lakh crore last year against Rs 88 lakh crore this year, which gives you the 10.3% growth figure. But that 10.3% growth must be examined in light of the real question: was last year’s nominal GDP actually Rs 86 lakh crore, or Rs 80 lakh crore? That is the critical question.

In my analysis, I assumed that if last year’s nominal GDP was indeed Rs 86 lakh crore, the growth in current prices comes to only 2.6%, not 10.3%. If you then apply the 2.5% inflation factor, real GDP growth for the first quarter comes out to close to zero. That is the central basis of my argument.

M.K. Venu: So, Mr Garg, you are correct in your description of how last year’s first-quarter base was revised. Now, some economists argue that because last year’s first-quarter base was reduced from Rs 86 lakh crore to Rs 80 lakh crore, it logically follows that the CSO, or the statisticians, must have increased the GDP stock for the subsequent quarters of last year, the second, third, and fourth, since the annual average could not have changed. These economists, who work for banks such as Axis and SBI, argue that because the second-quarter GDP of last year would have been increased to compensate for the first-quarter reduction, this year’s second-quarter growth would naturally be much lower than 7.8%. 

They are estimating around 7%. Overall, they expect the third and fourth quarters to come in around 7%, plus or minus 0.2 to 0.3 percentage points, that is their forecast. So, given this context, is it perhaps a bit early to celebrate a single quarter’s GDP growth? That is what I am asking.

Subhash Garg: Venu, that analysis, if that is what you have been given, is factually incorrect. The claim that the reduction in nominal GDP last year was shifted into the second or third quarter is simply not accurate. The correct position is this: in the second quarter as well, compared to the figure released last year on 30th November, there is a reduction of about Rs 5 lakh crore, similar to the Rs 6 lakh crore reduction in the first quarter. Only the third quarter shows an increase, and that increase is just Rs 25,000 crore, not lakh, just Rs 25,000 crore.

M.K. Venu: And the fourth quarter?

Subhash Garg: The old series has no figure for the fourth quarter, so no comparison is possible there. Comparable old data exists only for the first three quarters. The first shows a reduction of six lakh crore, the second a reduction of about five lakh crore, and the third an increase of only Rs 25,000 crore. So the numbers have not simply been shifted from one quarter to another. Someone is using that as a convenient argument. But in doing so, they are effectively suggesting that the growth projected for the first quarter is not genuine. If their argument is accepted, that the higher growth results from this statistical shifting, then, in effect, they too are conceding that first-quarter growth is not really 7.8% or 10.3%, but considerably lower. So, on both counts, they are mistaken: first, because no such shifting occurred, and second, because their own argument amounts to an admission that first-quarter growth is not genuinely that high.

M.K. Venu: I see. This is something I heard some bank chief economists explain on a business channel, CNBC, specifically. So you are saying they are probably mistaken?

Subhash Garg: Not probably, they are actually mistaken, and possibly deliberately misleading. These numbers are in the public domain and can be verified. Anyone using this argument to claim the figures have been “shifted” is not being truthful.

M.K. Venu: Well, they were probably referring to the growth rate rather than the absolute figures.

Subhash Garg: Perhaps. But you asked me specifically whether six lakh crore of GDP had been “shifted” elsewhere. I have given you the factual position based on government data for the remaining three quarters. If that is indeed what they meant, then they are mistaken. I haven’t heard their remarks directly, I am only going by what you’ve relayed to me.

M.K. Venu: Mr Garg, it’s possible I did not fully convey what they were saying. Their point was that in the first quarter of the previous year, growth was around 8%, and in subsequent quarters it moderated slightly. Now, they suggest, subsequent quarters this year may show a comparatively higher growth rate.

Subhash Garg: If you accept that reasoning, then the second quarter would also carry this same “boosting” effect, since it too was revised down by five lakh crore. It is really only the third and fourth quarters where there is no such neutralizing factor. But whatever growth emerges there would be genuine growth.

M.K. Venu: Genuine growth, correct, yes.

Subhash Garg: So the second quarter would show a similar effect.

M.K. Venu: So you’re saying it will have the same boosting effect.

Subhash Garg: Yes. The first quarter had it, and the second quarter would as well.

M.K. Venu: So the government might well celebrate in the second quarter too. Mr Garg, let’s turn to some substantive issues. You’ve explained the technical and statistical arguments. Do you see this growth rate correlating with rising incomes at the bottom, say, the bottom 70-80% of India’s population? Is the growth broad-based? Do you see broad-based consumption growth? And how do you interpret the RBI data showing that India’s savings rate is now at a multi-decade low? How do these pieces fit together?

Subhash Garg: These are complex questions, and easy correlations are not really possible. We don’t have income-distribution data for the country. We have expenditure data, and we have gross value-added production data, but not income data. So there is no reliable analytical basis for tracking how income distribution is changing.

Broadly speaking, there are three major claimants to national income, which incidentally equals GDP itself. The first is the large workforce, the labour class, who work either with their hands or their minds. The second is the corporate sector, which earns profits that are either invested or distributed; this is sometimes called “pre-distribution,” or corporate earnings. The third is the government, which collects revenue through taxes.

We do have corporate data for recent years, and corporate incomes have generally grown, partly aided by tax effects, although even that growth has been slowing over the past six or seven quarters. Government tax growth, too, has not been especially strong. As for labour incomes, we simply don’t know, because such data is typically expressed in current prices, and current-price GDP growth itself has not been very high recently. Over the last three or four years, nominal GDP growth has stayed below 10%; last year, in 2024-25, it was below 9%. This year’s figure, for 2025-26, is yet to come.

This is significant because nominal, not real, GDP is where actual income and expenditure occur. Real GDP is, in a sense, a statistical abstraction, useful mainly for gauging sentiment, whether people feel good or bad about the economy. No one actually transacts in “real” terms; what matters is the nominal figure, since that is where income distribution effectively plays out. My broad sense, then, is this: the labour class has not seen a significant rise in incomes, corporates have seen somewhat higher incomes, and government tax revenue growth has stayed roughly flat. Without actual distributional data, though, it is difficult to answer your question with precision.

M.K. Venu: What about the Periodic Labour Force Survey? Doesn’t that give a broad cross-section of wage growth?

Subhash Garg: Correct. Up until 2023-24, the PLFS suggested healthy growth in the labour force and employment. But the latest available data, for 2024-25, now shows that this growth has stalled. As for incomes, across most categories, especially the self-employed and casual workers, income growth has lagged behind both inflation and nominal GDP growth. In other words, these groups are receiving a shrinking share of the income pie.

One major factor behind this is the emergence of a new labour category: unpaid family labour in family enterprises, that is, people who work without receiving any pay. This group has expanded significantly. Another expanding group is those employed, at least on paper, in agriculture, which still accounts for roughly 45% of the workforce. When such a large share of an expanding workforce is concentrated in these two categories, it points to substantial distress in the employment market.

M.K. Venu: Yes, and there’s another data point that supports what you’re saying. Today, 58% of India’s employed population is self-employed, and of that group, more than 30% are believed to be unpaid family labour, as you mentioned. Professor Santosh Mehrotra, the labour economist, has put the number of unpaid workers at somewhere between 90 million and 100 million.

Subhash Garg: There’s another area where the problem shows up clearly, Venu: educated unemployment among youth, specifically those aged 15 to 29. About 25% of this group falls into what is known as NEET, “Not in Education, Employment, or Training,” meaning they are effectively doing nothing at all. 

That works out to roughly 8 to 9 crore people, since this age cohort totals around 35 crore. It’s a troubling commentary on our society that a quarter of our young people are neither employed nor even looking for work. So what are they doing?

My own analysis suggests there are two broad groups within this population. The first consists of women who have chosen to leave the labour market to focus on family life and raising children. They may not have wanted this outcome, many are educated and could have pursued employment, but they have accepted this path and exited the workforce.

The second group is more distressing: these are people who want to work but no longer see themselves as employable. Many have spent years attempting various competitive examinations.

M.K. Venu: Is this part of the 8 to 9 crore figure you mentioned?

Subhash Garg: This is out of that 8 to 9 cr. The second group of those other than the women who have decided to settle down. These have exhausted their attempts at sitting. They’ve tried engineering, they’ve tried medical, they’ve tried UPSC. These are people outside the labor market, that’s what NEET means that you are outside the labor market. You don’t even consider yourself good enough to be looking for a job. Forget whether you get the job or not, that’s the second thing. But you are not even looking to get into the labor.

MK Venu: Mr Garg, this seems to sit somewhat at odds with the reported growth rate. We have a large number of unemployed youth, a large number of self-employed and family workers who are not being paid, and, as you said, broader wage growth for labour has stagnated in real terms. What impact does this have on consumption? Do you see it dragging consumption growth down?

Subhash Garg: Consumption ultimately depends on income, government transfers, or credit extended by the financial system for consumption purposes, with income being the dominant factor and the rest playing a smaller role. So the real question becomes: are incomes actually growing the way GDP figures suggest, or are incomes stagnant while the GDP numbers themselves are not entirely genuine? The jury is still out there.

I believe we need to investigate this from both directions. Is GDP growth genuinely as reported? Note that GDP for 2023-24, under the new series, was revised down by about 12 lakh crore. That means actual GDP, or income, today is meaningfully smaller than earlier estimates suggested for 2023-24. So we need to determine whether the actual GDP growth, from 2023-24 onward, is genuine, or whether the income-distribution assumptions embedded in these figures are flawed. There isn’t really a third possibility.

M.K. Venu: I see, so one of those two scenarios has to be true.

Subhash Garg: Correct. If growth is genuine and distribution is broadly fair, consumption should be rising accordingly. I compared the consumption figures released on 30th August 2025 for Q1 with the revised consumption data for the same period last year. The growth of roughly 7.5% to 8% now being projected for this year is measured against a downwardly revised consumption base from last year. If you instead compare it to the original consumption figures the government released on 30th August 2025, this year’s Q1 2026-27 consumption is actually about 5% lower in absolute terms, never mind the growth rate.

M.K. Venu: So you’re essentially suggesting that even the existence of consumption growth needs to be investigated.

Thank you very much, Subhash-ji, for speaking with us. And let me clarify what I meant earlier by “camp”: I meant which side of this debate you fall on, not a political camp.

Subhash Garg: I try not to align myself with any side of the debate. My analysis might lead in different directions on different points, some conclusions might align with one camp, others with another. I am not a permanent member of any camp, and I don’t wish to be.

M.K. Venu: Understood. Thank you for speaking with us and sharing your perspective.

This article went live on September fifth, two thousand twenty six, at forty-seven minutes past four in the afternoon.

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