Editorial 1: What the recent GDP data revisions reveal

Context

Both real and nominal growth rates have been adjusted upward, influencing medium-term potential growth and guiding long-term strategic planning.

Introduction

On February 28, 2025, the National Statistical Office (NSO) released national accounts data, providing two key insights. First, it includes revised annual estimates of GDP and GVA for 2022-23, 2023-24, and 2024-25. Second, it presents Q3 2024-25 GDP and GVA estimates along with the second advance estimates for 2024-25.

Third quarter growth, sectoral performance

• GDP Growth (%):
  • Q1: 6.5%
  • Q2: 5.6%
  • Q3: 6.2%
  • Q4 (Projected): 7.6% (uncertain)
• Sectoral Performance:
  • Agriculture Growth: 5.6% in Q3
  • Manufacturing Growth: Improved from 2.1% in Q2 to 3.5% in Q3
  • Trade & Hospitality Growth: Increased from 6.1% in Q2 to 6.7% in Q3
• Contribution to GDP Growth:
  • PFCE (Private Final Consumption Expenditure):
    • Q1: 4.3 pp
    • Q2: 3.3 pp (decline impacted GDP)
    • Q3: 4.1 pp
    • Q4: 5.3 pp (requires 9.9% PFCE growth, which seems unlikely)
  • Investment Contribution:
    • Q1: 2.3 pp
    • Q2: 2.0 pp
    • Q3: 1.8 pp (decline partly caused lower GDP growth)
    • Q4: 2.1 pp (depends on government spending)
• Government Capital Expenditure:
  • ₹7.57 lakh crore spent till January 2025
  • Needs an additional ₹2.61 lakh crore in the last two months
• Challenges for Q4 Growth: PFCE decline in Q2 impacted GDP growth.
  • Achieving 7.6% GDP growth requires 9.9% PFCE growth, which is difficult.
  • Government must meet revised spending estimates, but past trends suggest shortfall.
  • If government spending falls short, full-year GDP growth of 6.5% may be revised downward.

Annual data revisions

• Upward Revision in Growth Rates: Both real and nominal GDP growth rates have been revised upwards.
  • Real GDP growth estimates:
    • 2022-23: 7.6%
    • 2023-24: Revised from 8.2% to 9.2%
    • 2024-25: 6.5% (showing a decline from the previous year)
  • GVA growth for 2023-24 revised from 7.2% to 8.6%.
• Sectoral Revisions:Manufacturing saw the highest upward revision: +2.4 percentage points.
  • Financial, real estate, and related services grew by +1.9 percentage points.
• Decline in 2024-25 Growth: Real GDP growth fell by 2.7 percentage points compared to 2023-24.
  • Major reason: Gross Capital Formation (GCF) growth dropped from 10.5% (2023-24) to 5.8% (2024-25).
• Impact on ICOR (Incremental Capital-Output Ratio): Revised estimates for ICOR:
  • • 2022-23: 4.8
    • 2023-24: 4.0 (considerably lower)
    • 2024-25: 5.5
    • Average ICOR for 2022-23 & 2024-25: 5.1.
    • Large discrepancies in 2023-24 may lead to further revisions.
• Policy Challenges: Frequent and sharp revisions make policymaking and economic planning more difficult.

Prospects for 2025-26, medium-term growth

Metric	2022-23	2023-24	2024-25	2025-26 (Projected)
Nominal GDP Growth (%)	14.0%	12.0%	9.9%	Likely higher than 10.1% (Budget assumption)
Real GDP Growth (%)	7.6%	9.2%	6.5%	Estimated at 6.3%-6.8% (Mid-point: 6.55%)
Potential Medium-Term Growth (%)	—	—	—	6.5% (if government investment remains strong)
Private Investment Outlook	—	—	—	Needs more time to gain momentum
PFCE (Private Final Consumption Expenditure) to GDP Ratio	—	—	—	Increasing PFCE may boost consumption demand, but it could reduce investment demand

Conclusion

In 2023-24, the nominal saving rate is estimated at 30.7%, slightly below the pre-COVID average of 31.2%. To boost growth, increasing savings and investments should be a priority. The real investment rate is usually higher than the nominal rate due to differences in price changes between investment and consumer goods. In 2024-25, the real investment rate (GFCF to GDP ratio) is expected to be 33.4%, with an ICOR of 5.1, leading to a potential growth rate of 6.5%. For now, investment-driven growth remains a strong long-term strategy.

Editorial 2: The dangerous illusion cast by development rankings

Context

Indicators like the United Nations’ HDI and PHDI fail to account for the constraints of Earth’s finite resources.

Introduction

California was burning once again. The recent wildfires were so severe that the damage was estimated at $250 billion—almost as much as Greece’s economy in 2023. These fires show the real price of how rich countries have developed. If every country used resources like the U.S. or the EU, we would need several Earths to support our lifestyle. Yet, global rankings like the UN’s HDI still present these countries as ideal models of development. This gap between praised standards and environmental limits isn’t just wrong—it’s risky.

How is the progress misguided?

• HDI measures progress based on three factors:
  • Life expectancy
  • Education
  • Income
• However, it ignores the environmental impact of high HDI scores.
• Environmental Cost of High HDI Countries: Top-ranked countries like Ireland, Norway, and Switzerland are among the biggest:
  • Resource consumers
  • Carbon polluters per person
  • If all countries followed their model, Earth’s resources would be exhausted.
• High-Income Countries & Environmental Damage: These nations have already crossed planetary boundaries in:
  • Greenhouse gas emissions
  • Ecological destruction
  • Pollution
  • HDI does not consider these harms, making its model unsustainable.
• Introduction of Planetary Pressures-adjusted HDI (PHDI): In response to criticism, the UN launched PHDI in 2020.
  • It adjusts HDI scores for countries with high environmental impact.
  • However, it still ranks nations relative to each other, not against absolute ecological limits.
• Why PHDI Still Falls Short: Nordic countries still rank high despite consuming five Earths’ worth of resources per person.
  • Their high scores exist only because some countries (like Qatar) perform even worse.
  • This approach hides the real problem—the world cannot sustain the lifestyles of high-income nations.
• The Dangerous Illusion of Progress: PHDI creates a false sense of sustainability.
  • It maintains the status quo, making true global sustainability harder to achieve.

Celebrate the middle-income countries

Aspect	Costa Rica	Sri Lanka
Research Focus	Examining nations achieving sustainable living standards without environmental harm.
Key Strengths	High life expectancy, quality healthcare, and strong literacy rates with minimal resource consumption.	HDI of 0.78, well-developed healthcare and education systems.
Sustainability Efforts	Investments in renewable energy and forest conservation.	Faces sustainability challenges due to economic and political issues.
Challenges	NA	2022 economic crisis led to inflation, protests, and political instability.
Social & Political Issues	NA	Ethnic tensions and majoritarian policies have slowed progress.
Overall Conclusion	Sustainability requires balancing development with ecological responsibility.	Achieving true sustainability demands justice within and among nations.

 

India needs to look for alternatives

Limitations of the Nordic Model

• The Nordic model, often praised for its success, may not be globally replicable.
• At best, it remains a local success; at worst, it is an unsustainable illusion when applied worldwide.
• Countries like India, with a vast population of 1.4 billion, cannot adopt the high-consumption patterns of affluent nations.

Alternative Development Approaches

• India must explore sustainable alternatives that balance growth with ecological responsibility.
• Costa Rica and Sri Lanka, despite their imperfections, provide valuable insights for a new development pathway.
• A sustainable model should respect environmental boundaries while ensuring social and ecological justice.

Rethinking Progress and Development

• The traditional notions of “progress” and “development” must be redefined in the 21st century.
• Current metrics like the Human Development Index (HDI) and Planetary Health Development Index (PHDI)prioritize growth without considering planetary limits.
• A new framework is needed—one that acknowledges environmental constraints and promotes long-term sustainability.

Conclusion

For India and other developing countries, real progress is not just about increasing GDP or improving HDI rankings. It means building a society where everyone lives with dignity and within the limits of nature. This is not just an idealistic goal—it is essential for survival in the 21st century.