Raghuram Rajan spots two worrying trends behind India's 7.8% GDP growth
Rajan explained that the strong real GDP number was partly a statistical effect of unusually low inflation.
- Sep 14, 2025,
- Updated Sep 14, 2025 8:24 AM IST
Former Reserve Bank of India Governor Raghuram Rajan said India's first-quarter GDP numbers need closer scrutiny despite the headline 7.8% growth, a five-quarter high. Speaking with SparX's Mukesh Bansal, Rajan highlighted two key concerns: sluggish private investment and weak job creation.
"You want to obviously feel happy about the overall number whenever it's high-reason to always celebrate. But then you want to parse it. Why is it so high?" Rajan said.
He explained that the strong real GDP number was partly a statistical effect of unusually low inflation. "One of the reasons it's high is because the way we calculate GDP is we look at what nominal GDP growth is in rupees, and how much it has grown. And then you divide it by how much inflation has been to get the real GDP growth. Now the reason for this particular number is actually consists of one alarming piece. Our nominal GDP has grown quite slowly actually relative to the past, only at around 8.8%. It's what we divide it by—the inflation number, which has been very low. And as a result, our overall real GDP growth has been quite strong,” he said.
Rajan said India’s inflation metrics may not fully capture reality. "Are we calculating our inflation properly? And it turns out when you talk to economists that there are problems with the way we calculate inflation because it doesn't truly reflect the inflation that we should be using. Now, sometimes this helps us, sometimes this hurts us. We are in a phase where it is helping us. And so we look a little stronger," he noted.
Beyond the data quirks, Rajan pointed to deeper worries. "A lot of the investment is coming from the government-federal and state. But the private sector is not investing as much. And that has been a worry for the last 10-12 years. If we are growing so fast, why is the private sector not investing? That’s a question that has plagued all economists," he said.
He added that while rural demand had been buoyed by good harvests, urban consumption was fragile. "This is good news. It reduces inequality somewhat. But there is still the question of how to get sustainable consumption. We probably need households to feel more confident about jobs. And that’s where urban households seem to be a lot more diffident. You’ve seen the news… our tech companies, TCS is cutting back on jobs. The broader issue is economy is not creating as many good jobs as needed to employ all the young people coming into the labor force," Rajan said.
On U.S. tariffs, Rajan said the impact would be limited but uneven. "If you look at the overall U.S. exports, probably $40 billion of the $85 billion is value added in India. Even if it collapses totally we lose about $40 billion of GDP. That’s about 1% of GDP. But we're not going to-it's not going to collapse totally," he said.
He warned that sectors like textiles and shrimp farming could feel the pain. "It could be our shrimp farmers. What we should emphasize is - they should be lobbying via their counterparties in the U.S. This administration seems to be quite willing to give exemptions. Brazil has got a huge number of exemptions to the 50% tariffs that’s been put on Brazil,” Rajan said.
Rajan estimated that if tariffs remain for a few months, India could see a 0.2–0.4% GDP hit. "But our government should be helping exporters do that in the U.S., using lobbies for Indian enterprise that can reduce the damage considerably," he said.
Former Reserve Bank of India Governor Raghuram Rajan said India's first-quarter GDP numbers need closer scrutiny despite the headline 7.8% growth, a five-quarter high. Speaking with SparX's Mukesh Bansal, Rajan highlighted two key concerns: sluggish private investment and weak job creation.
"You want to obviously feel happy about the overall number whenever it's high-reason to always celebrate. But then you want to parse it. Why is it so high?" Rajan said.
He explained that the strong real GDP number was partly a statistical effect of unusually low inflation. "One of the reasons it's high is because the way we calculate GDP is we look at what nominal GDP growth is in rupees, and how much it has grown. And then you divide it by how much inflation has been to get the real GDP growth. Now the reason for this particular number is actually consists of one alarming piece. Our nominal GDP has grown quite slowly actually relative to the past, only at around 8.8%. It's what we divide it by—the inflation number, which has been very low. And as a result, our overall real GDP growth has been quite strong,” he said.
Rajan said India’s inflation metrics may not fully capture reality. "Are we calculating our inflation properly? And it turns out when you talk to economists that there are problems with the way we calculate inflation because it doesn't truly reflect the inflation that we should be using. Now, sometimes this helps us, sometimes this hurts us. We are in a phase where it is helping us. And so we look a little stronger," he noted.
Beyond the data quirks, Rajan pointed to deeper worries. "A lot of the investment is coming from the government-federal and state. But the private sector is not investing as much. And that has been a worry for the last 10-12 years. If we are growing so fast, why is the private sector not investing? That’s a question that has plagued all economists," he said.
He added that while rural demand had been buoyed by good harvests, urban consumption was fragile. "This is good news. It reduces inequality somewhat. But there is still the question of how to get sustainable consumption. We probably need households to feel more confident about jobs. And that’s where urban households seem to be a lot more diffident. You’ve seen the news… our tech companies, TCS is cutting back on jobs. The broader issue is economy is not creating as many good jobs as needed to employ all the young people coming into the labor force," Rajan said.
On U.S. tariffs, Rajan said the impact would be limited but uneven. "If you look at the overall U.S. exports, probably $40 billion of the $85 billion is value added in India. Even if it collapses totally we lose about $40 billion of GDP. That’s about 1% of GDP. But we're not going to-it's not going to collapse totally," he said.
He warned that sectors like textiles and shrimp farming could feel the pain. "It could be our shrimp farmers. What we should emphasize is - they should be lobbying via their counterparties in the U.S. This administration seems to be quite willing to give exemptions. Brazil has got a huge number of exemptions to the 50% tariffs that’s been put on Brazil,” Rajan said.
Rajan estimated that if tariffs remain for a few months, India could see a 0.2–0.4% GDP hit. "But our government should be helping exporters do that in the U.S., using lobbies for Indian enterprise that can reduce the damage considerably," he said.