How India’s Growth Rate Keeps Beating Forecasts

18 Oct 2026

Tags: Economy   Planning & Growth   Economic growth

Source: The Indian Express

Context: The Reserve Bank of India (RBI) raised its GDP growth forecast for the current financial year to 7.1%, from 6.9% at the beginning of the year, 6.6% in June and 6.7% in August, reflecting stronger-than-expected economic performance despite geopolitical challenges.

• India’s actual economic growth has repeatedly exceeded professional forecasts in recent years, particularly since FY2022-23.

How Are Growth Forecasts Assessed?

• RBI’s Survey of Professional Forecasters: Since September 2007, the RBI has surveyed professional economists every two months to assess economic indicators and expectations.
• Gross Value Added (GVA): The article compares the median forecast for annual GVA growth made in March with the actual growth rate. GVA measures the value added by producers and is calculated as the value of output minus intermediate consumption.
• GVA versus GDP: GDP is obtained by adding net product taxes (taxes less subsidies) to GVA. The article uses GVA because it provides a better basis for comparing underlying production-side growth forecasts.

Changing Pattern of Forecast Errors

• Before FY2021-22: Actual GVA growth generally turned out lower than forecasts made at the beginning of the financial year; in FY2020-21, the COVID-19 shock made early forecasts particularly unreliable.
• Since FY2022-23: Actual growth has more frequently exceeded forecasts, indicating a persistent divergence between economists’ expectations and realised economic performance.
• Forecasting uncertainty: According to Madan Sabnavis, Chief Economist at Bank of Baroda, geopolitical disruptions—including the Russia–Ukraine war, crude oil volatility, the Israel-related conflict and subsequent tariff tensions—have encouraged forecasters to adopt more conservative assumptions.

The FY2016-17 Puzzle

• Forecast versus actual: In March 2016, the median forecast for FY2016-17 GVA growth was 7.7%; by March 2017, it had fallen to 6.7%, whereas actual GVA growth reached 8%.
• Economic shock: The government announced demonetisation in November 2016, withdrawing specified high-value currency notes from circulation, an intervention expected to disrupt economic activity.
• Unexpected resilience: Despite demonetisation, the economy recorded higher-than-forecast growth. The article notes that the subsequent years—FY2017-18, FY2018-19 and FY2019-20—also showed progressively weaker economic performance before COVID-19, complicating the interpretation of the FY2016-17 outcome.

Why Might Forecasts Underestimate Growth?

• Conservative assumptions: Forecasters may give greater weight to downside risks, particularly geopolitical uncertainty, trade disruptions and commodity-price volatility.
• Unexpected resilience: Actual economic activity may prove more resilient than anticipated, leading to repeated upward surprises.
• Forecast limitations: Forecasts depend on available information and assumptions at a particular point in time; unexpected policy changes, external shocks and revisions to national accounts can alter the final estimates.

Relevant Concepts for UPSC

• GDP (Gross Domestic Product): The total value of final goods and services produced within a country during a given period.
• GVA (Gross Value Added): Measures value added by economic producers across sectors. At the aggregate level, GDP at market prices = GVA at basic prices + product taxes − product subsidies.
• Median forecast: The middle value of a set of forecasts arranged in ascending order; it is less sensitive to extreme forecasts than the arithmetic mean.
• Demonetisation: The withdrawal of the legal-tender status of specified currency notes. India announced the withdrawal of ₹500 and ₹1,000 notes on 8 November 2016.
• Forecast error: The difference between projected and actual outcomes. Persistent errors in one direction may indicate systematic forecasting bias or an inability to anticipate changing economic conditions.