Why Subhash Garg believes India’s dollar GDP growth is 'among the lowest’

On paper, India’s headline real GDP growth paints a picture of an unstoppable economic powerhouse—the fastest-growing major economy in the world. But strip away the headline numbers and look at growth in current US dollars, and a starkly different reality emerges.

In the latest episode of The Federal’s YouTube programme AI With Sanket, former Finance Secretary Subhash Garg breaks down why currency depreciation and external pressures alter the narrative. He details how the IMF calculates these competing metrics, why India falls behind several peers when measured in dollar terms, and what relentless pressure on the rupee signals about the country’s deeper economic vulnerabilities.

Edited excertps:

You have once again drawn attention to India’s GDP numbers. There seems to be a clear divergence between your assessment and the government’s figures. What argument are you presenting now?

These are not my numbers. Even in the controversy last month regarding real and nominal GDP, the figures released by the National Statistical Office (NSO) were the government’s numbers. The IMF, produces its own analytical estimates of GDP growth across the world.

There are two prominent measures that the IMF brings out. One captures real GDP growth as reported to the IMF by individual countries, according to a data system the IMF has laid out for everyone. There is a standard and a protocol for this.

Under that system, every country calculates its GDP growth in its local currency. For India, the IMF’s estimate for 2026–27 was 7%. This figure is partly based on actual data, since one quarter had already passed, and partly on estimates for the remaining quarters.

India’s first-quarter growth was 7.8%. The Reserve Bank of India (RBI) has also given a growth estimate of 7.1% for 2026–27. These figures are very close to what the government has been saying. That is why I have used the expression “IMF-certified”. The IMF’s 7% growth estimate for India is very close to the government’s estimate.

The other measure the IMF publishes is also part of its data system. This is neither my invention nor my interpretation. The IMF takes the GDP data supplied by its member countries — around 180–190 countries — in current prices. The distinction here is that we are not talking about real GDP growth, but growth in current GDP as estimated by the respective countries.

This brings everyone’s growth onto one common standard: the current US dollar. Even the United States’ own growth figures change under this measure. This measure provides a common denominator for comparing GDP growth across countries.

This is where the numbers become significant. India’s GDP in 2026–27 is projected to grow by only around 3.5% or 3.6% in current US dollar terms. The US is growing at around 5.6%, while China is growing at more than 9%. The global economy as a whole is growing at more than 8% in current US dollar terms. That is a very significant figure, and I think it should surprise everyone.

In real GDP terms, the IMF says the world is growing at 3.1%, while India is growing at 7%. But in current US dollar terms, global growth exceeds 8%, whereas India’s is around 3.6%.

All these numbers come from the IMF. They raise an important question: should we look at only one side of the picture, which depends largely on what individual countries report and does not account for the interplay of currencies? Currency movements are very material and essential in the global economy. By this measure, India is among the lowest-growing countries in the world.

This contradiction is one of the most serious economic issues facing our country today. In real GDP terms, we are among the fastest-growing economies in the world. In current US dollar terms, we are among the slowest-growing.

The same year’s figures suggest that there are good things happening in the country, but there are also many problems.

Is this a correct way to measure GDP? How does the IMF arrive at these figures? Does it conduct its own surveys, or does it largely depend on data provided by individual countries?

The IMF has developed a system called the General Data Dissemination System, and it also has a protocol called the Special Data Dissemination Standard. These are the two frameworks that have been developed for countries.

Countries are expected to calculate both real GDP and current GDP according to these protocols so that the figures become comparable across the world. They then supply the data to the IMF.

The IMF has information about currency appreciation and depreciation. Its core purpose is to bring stability to foreign exchange and currency markets. It has data on currency appreciation, depreciation and stability. The real GDP and growth figures, along with current GDP and its growth, are supplied by the respective countries. The IMF then adjusts the current GDP growth data for currency appreciation or depreciation.

In the case of the US and China, for instance, their currencies have appreciated. As a result, their growth in current US dollar terms is higher than their real GDP growth.

China’s real GDP growth is 4.5%, for example, but its growth in current US dollar terms is around 9%. The IMF uses the information in its database about the appreciation or depreciation of each currency to calculate these figures.

The IMF does not have its own system or machinery to calculate the GDP of individual countries. It takes the figures supplied by those countries, applies the currency adjustment factor and arrives at the data.

Would it be fairer to compare India’s GDP in US dollar terms with the previous year’s figures, taking currency fluctuations into account, rather than comparing real GDP with GDP adjusted for currency movements? Would that give us a clearer picture of where we stand?

Real GDP is not adjusted for currency depreciation. That is not how the calculation works. It is the current GDP reported by countries that is adjusted for currency depreciation.

The comparison is made against the previous year. We compare what our current GDP in US dollars was last year with what it is in the current year. The growth, or lack of it, is then calculated.

Global GDP is projected to be $128 trillion in 2026–27, around $9 trillion more than in the previous year. That is what gives us growth of approximately 8%.

The comparison is therefore with the previous year’s data, not between real GDP and the other measure. That is the standard system: comparing the figures with those of the preceding year.

Unfortunately, India has been facing enormous pressure on the rupee since 2023–24. That is why our growth, measured in current US dollars, has averaged only around 3% to 4% annually for three consecutive years.

This is a long-term currency problem for the country, and we need to examine it. Why does the RBI have to resort to such desperate measures time and again, and why do they fail to work? That is the problem we should be solving.

Given the volatile international situation, including wars and fuel-price fluctuations, India’s economy is under pressure. If we compare India with other countries facing similar global challenges, would you conclude that we are not performing as well as they are? If so, why is India more vulnerable to these challenges?

I think this is precisely the issue. When you compare economies in current US dollar terms, China grows at around 9%. Even the UK, which has very low growth in real GDP terms, grows at a much higher rate of around 6.5%. India, by contrast, grows at only around 3.5%.

The global challenges you mentioned affect the entire world. If there is a war in the Middle East that disrupts oil and gas supplies, China faces the same problem as India. Similarly, if there are problems arising from the Russia-Ukraine war or US policies on tariffs, everyone is affected.

Despite these circumstances, how do some countries see their currencies appreciate and manage to perform reasonably well, while India does not? That is the question.

When you examine this, you find that India is in a very vulnerable position in terms of foreign exchange, currency management and the external sector. We are in one of the worst possible situations.

A currency’s value depends on how much money flows into a country and how much flows out. These movements also determine the level of reserves and the exchange rate. At present, not all the components of capital inflows are working in the country’s favour.

We have had a persistent merchandise trade deficit for years. Our exports of goods are much lower than our imports. For the past three or four years, we have also faced problems with foreign direct investment (FDI) and foreign portfolio investment (FPI).

FPIs have withdrawn around ₹3 lakh crore this year, over a period of nine to nine-and-a-half months. That is an extraordinarily high amount. Why are they withdrawing so much money?

FPI investments in government securities, which were coming into the country until last year, have also reversed. Why is that happening? FDI inflows into the country are lukewarm, while more FDI is flowing out. Why is all this happening? I can go into each of these reasons.

We also need to consider how market participants view the central bank’s currency management.

Suppose you decide to buy gold worth more than $100 billion, which is roughly the value of our current gold reserves. You are using hard-currency reserves to buy gold and build up those reserves, even though you know you cannot use that gold directly to make payments. You are locking up a substantial amount of your reserves in the process.

You also adopt policies such as currency swaps. Under one such arrangement, the RBI buys dollars today and promises to sell them back one or two years later at a predetermined exchange rate. The book of such transactions is now worth more than $150 billion.

Market participants know that this amount has to be paid back. To that extent, your reserves are smaller. When your capital flows are under stress and you manage capital in this way, it sends signals to sophisticated market operators.

There are several reasons why India’s situation is more precarious, vulnerable and unfavourable compared with that of other countries. That is what the GDP growth data reflect.

When you adjust GDP growth measured in local currency for the depreciation of that currency against the US dollar, the effect of currency depreciation becomes apparent. The resulting comparison changes how the country’s growth performance looks.