Editorial: Why is India's GDP like Chennai's weather?

Yet again, India’s latest GDP numbers are incongruous with the popular mood. They look good but don’t feel so good. For the record, the growth rate in real terms for the first quarter (April–June) of 2026–27 has been put at 7.8%, beating the Reserve Bank of India’s forecast of 7%.

This is faster than the 6.9% growth rate seen in the first quarter of FY 2025–26, but slower than the 8.6% recorded in the immediately preceding quarter (Q4 FY 2025–26).

Considering that Q1 of this financial year took the brunt of the economic fallout from the war in West Asia, the numbers have surprised analysts while allowing the government to gloat that India continues to be the world’s fastest growing big economy.

Indeed, from their travels abroad, both Prime Minister Narendra Modi and Finance Minister Nirmala Sitaraman congratulated not themselves but the people of India for braving oil price shocks and supply chain issues to return such impressive figures.

However, the PM belied his own exuberance when he posted a selfie video from Bishkek in Kyrgyzstan appealing to people at home, for the second time this year, to avoid foreign travel, gold purchases, and destination weddings to help conserve foreign exchange.

The obvious question this begs is why is there a need for austerity if the economy is growing at 7.8%?

Plenty of contextual facts illustrate the lack of enthusiasm for these GDP growth numbers. Not only did the Indian stock market not react to the Q1 numbers, its performance this year also remains poor compared to global peers. It is down 9% year to date compared to other emerging markets which are up 20%. Foreign investors have so far pulled out $27–29 billion from the Indian stock market this year, topping the flight of $18.9 billion in 2025.

Another metric for foreign confidence in India’s economy, net foreign direct investment—net of investment withdrawal, profit repatriation and Indian firms’ investments abroad—makes for gloomy reading as well. For the current financial year, net FDI stands at $7.8 billion and is projected to reach about $15 billion for the whole year, compared to the pre-pandemic baseline of $35.1 billion per year.

The fact remains that India’s self-certified growth numbers are not impressing foreign investors and Indian firms alike. While several rating agencies continue to put India just above the lowest investment grade, private capital expenditure by India’s own firms remains reluctant at best.

In the last financial year, private capex contracted by 2.8%. In 2025-26, the private capex-to-GDP ratio fell to 3.4% from 3.9% the year before, with only four out of 18 major sectors showing positive growth. This leaves the Indian government to do all the heavy lifting of capital expenditure itself. The tax cuts of 2019 and the GST revision and income tax reduction of 2025 have not changed that skew one bit.

If Indian and foreign companies are hesitant to invest in India, where is consumption growth coming from? While the government’s data shows that private consumption grew at 7.1% year-on-year in Q1 2026–27, it remains frustratingly K-shaped, with spending concentrated on high-value goods like cars but slack on basic goods and services. So, like Chennai’s weather, India’s GDP growth rate reads cool but feels not quite so salubrious.