The latest quarter’s impressive value-added growth raises many questions regarding aspects of consumption.

The Union Ministry of Statistics and Programme Implementation has recently released the Gross Domestic Product estimates for the first quarter of 2025-2026 (Q1 2025-26), showing an impressive real growth rate of 7.8% over the corresponding quarter of last year. This growth, in fact, surpassed the assessment of most analysts, who expected it to be 6.5-7%. 

As only limited data is available in the public domain, it is not possible to comment on the causes underlying this spurt in growth. It does, however, raise certain interpretational issues, particularly on the distributive aspects of this growth.

Lower than expected growth of agriculture

For instance, Q1 2025-26 growth of the agriculture sector at current prices has come down to 3.2% from 7.5% in Q1 of 2024-25; though its real growth at 3.7% is higher in comparison to the Q1 2024-25 growth of 1.5%.

What does this indicate about the economic gains of the dependent segment, accounting for about 46% of the work force?

These numbers also must be seen in the backdrop of the rural population growth (0.4%) and the extant consumer rural inflation (2.4%) of that quarter. In view of this, the per capita real income since Q1 2024-25 would have grown only marginally, if at all.

Moreover, if primary sector as a whole is considered, the real income of households has declined since its growth at current prices is merely 1.7%, lower than even the consumer price inflation.

Source of growth of private consumption is not clear

Thus, it is quite safe to aver that there is no likelihood of consumption growth when it comes to more than 46% of the workforce. 

However, as per these estimates, real private final consumption expenditure (PFCE) grew by 7%, implying that consumption growth of the remaining segment of the population must have been much higher, perhaps in double digits. This inference is quite puzzling because there is little supporting evidence of increase in real wages of public sector employees.

Rather, many other indicators like sale of private vehicles, passengers handled at airports, telephone subscribers and railway passenger kilometres have shown significant falling trajectories. Also, the index of industrial production (IIP) for this quarter shows only a moderate growth in respect of consumer durables (2.6%) whereas in respect of non-durables, growth is negative (-1.3%). 

Which segment of population is contributing to high consumption growth?

Another puzzling issue is negative growth in electricity production in Q1 of 2026. This was a period of intense heat in most parts of India, but the monsoon arrived a little earlier than normal date. We do not know if the domestic consumption of electricity has declined or if industrial and commercial consumption is lower. Keeping in view the higher growth of gross value added (GVA) in manufacturing as well as in trade, transport, hotel and financial services etc., the only conclusion possible is that electricity consumption may have declined in households. 

A natural query then arises – which segment of the population has contributed to the consumption growth and in respect of which group and/or what items? The declining indicators not only put a question mark on consumption growth but also the growth of value addition in respect of trade, transport and communication, and so on. Falling production combined with lower transportation of goods activity ought to impact the generation of value addition in trade and hotels adversely, and not so positively.

Baffling growth in public administration, defence and other services

During Q1 2025-26, the fastest growth of 9.8% has been observed in public administration, defence and other services. Share of this sector in overall GVA is 12.6% at present. To appreciate as to which segments of this sector are fuelling the observed growth, understanding its structure at current prices in 2023-24 (latest available) and the broad methodology used for compiling the quarterly GDP, summarised below, may be instructive:

SegmentRelative Share¹ (%)MethodologyPublic administration and defence and public sector part of health and education services63.7Growth in revenue expenditure, net of interest payment and subsidiesPrivate corporate part of other services22.8Growth of value addition from listed companies²Household part of other services13.5Past growth 

(service tax growth for hair and beauty treatment and activities of membership organisations)

Relative share is within public administration, defence and other services.Official quarterly methodology is silent, but for all other private corporate segments, the source of data is listed companies from BSE/NSE. It is presumed to be the same in this case.

In public administration and defence, GVA consists of the compensation of employees (CoE) and the consumption of fixed capital – both of which are expected to be stable. In this sector, CoE constitutes more than 85% of GVA and there has been no significant real increase in CoE like the impact of wage hike through pay commission. It is germane that payment of dearness allowance to government employees is compensatory in nature and does not contribute to growth of CoE in real terms. Hence, any growth in value addition would come from increased employment therein. The latter is generally perceived to be negative or at best positive only nominally. 

However, for quarterly estimates, as stated above, the proxy used is revenue expenditure (less interest and subsidies). Q1 2024-25 being the period of elections to the Lok Sabha, much of the revenue expenditure was likely curtailed, as reflected in the negative growth of 1.5%. Obviously, the normal assumed correlation of the GVA in public administration and its proxy, the revenue expenditure (less interest and subsidies) would not operate in that extraordinary scenario. When the same indicator is used for Q1 2025-26 estimates, expenditures other than CoE having been restored to their normal levels, it would naturally show much higher growth. It must however be stressed that the same can not and should not be deemed indicative of GVA growth in this sector. 

Similarly, as the growth rate of household part of other services is largely based on past fixed growth rates, the growth of the household sector is not likely to fluctuate much. Therefore, quite a significantly higher growth of private corporate share of other services, having a share of only 22.8%, could be the agent pushing the overall growth rate of entire sector to 9.8%. Though it is based on limited data from the reporting listed companies, yet the chances of actualising such growth rates, though possible, may not be quite probable.

Conclusion

Overall, it is not clear which specific sector(s) is/are fuelling the growth rate. Is this the effect of using proxy indicators of organised segments for the unorganised segment? Or is current consumption being supported by past savings? This riddle can only be understood if more details of data used in the said compilation are made available by the government. 

In any case, data of annual growth rate, when it is released after the FY 2026 is over, will bring more clarity on the impact of 50% tariff on several goods exported to the US. 

Sanjay Kumar and N.K. Sharma retired as additional director general and director general respectively from the Ministry of Statistics and Programme Implementation. Siraj Hussain is former Union agriculture secretary. Views are personal.

This article went live on September third, two thousand twenty five, at fifty-one minutes past one in the afternoon.

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