BT Exclusive | Why manufacturing deflator turned negative: MoSPI Secretary explains 'double deflation' effect
Manufacturing deflator cannot be understood simply by comparing broad inflation measures such as the Wholesale Price Index and Consumer Price Index, says MoSPI Secretary Saurabh Garg
- Sep 3, 2026,
- Updated Sep 3, 2026 8:50 PM IST
MoSPI Secretary Saurabh Garg on Thursday explained why India's manufacturing GDP deflator turned negative in the April-June quarter despite rising input costs. He said the calculation reflects changes in both input and output prices rather than headline inflation alone.
Garg's explanation comes after economists questioned how the manufacturing implicit GDP deflator could be negative 1.5% even as manufacturing output and input prices increased. He said the answer lies in the "double deflation" method used to calculate value added, where input and output prices are assessed separately.
"When we prepare the GDP figures, we prepare them both in current prices, which reflect the price situation as it is, and we strip the price effect and convert it into constant prices. And we do that because that gives a better sense of how the real economy has grown and how output has actually grown," Garg said in an interview with Business Today Group Editor Siddharth Zarabi.
MoSPI reported 7.8% real GDP growth for the first quarter of FY27. The data, however, triggered questions over the divergence between current-price and constant-price growth, particularly after former finance secretary Subhash Garg argued that the economy had actually grown by only 2.6%.
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Why Manufacturing Deflator Turned Negative
The MoSPI secretary said the manufacturing deflator cannot be understood simply by comparing broad inflation measures such as the Wholesale Price Index and Consumer Price Index.
"What has actually happened on the factory prices, and that's where the issue of double deflation comes in that in manufacturing, input materials form a very important component. And continuing with the example of automobiles, automobiles require a lot of iron, and now a lot more plastics and a host of other products are used. So what has happened, especially in the last three months, the input prices have increased significantly."
He explained the calculation using the example of an automobile that sells for ₹100, while the cost of its inputs is ₹60. The value added by the manufacturer would therefore be ₹40. But if input costs rise to ₹80-85 while the final price remains at ₹100 because companies are unable to pass on the higher costs to consumers, the value added at current prices falls sharply.
"But on the output side, corporates have not been able to pass on those price increases to the final consumer, and therefore, the final prices have not increased to the same level. So that's why when the value added is looked at, input prices, let us say, what was Rs 60 has now become Rs 80 or 85, and that output has remained at Rs 100, and therefore, the value added in manufacturing is only Rs 10 or 15."
That creates a gap between current-price and constant-price value addition. "So, therefore, when we look at constant prices, the value added is Rs 40. But when we look at current prices, the value added is only Rs 15. Therefore, it is much lower than the constant price value add. And that is why in manufacturing, you have seen that the current prices value addition, the deflator is negative."
MoSPI Secretary Saurabh Garg on Thursday explained why India's manufacturing GDP deflator turned negative in the April-June quarter despite rising input costs. He said the calculation reflects changes in both input and output prices rather than headline inflation alone.
Garg's explanation comes after economists questioned how the manufacturing implicit GDP deflator could be negative 1.5% even as manufacturing output and input prices increased. He said the answer lies in the "double deflation" method used to calculate value added, where input and output prices are assessed separately.
"When we prepare the GDP figures, we prepare them both in current prices, which reflect the price situation as it is, and we strip the price effect and convert it into constant prices. And we do that because that gives a better sense of how the real economy has grown and how output has actually grown," Garg said in an interview with Business Today Group Editor Siddharth Zarabi.
MoSPI reported 7.8% real GDP growth for the first quarter of FY27. The data, however, triggered questions over the divergence between current-price and constant-price growth, particularly after former finance secretary Subhash Garg argued that the economy had actually grown by only 2.6%.
Don't Miss: 'Methodology is very robust': Former statisticians back GDP base year revision
Why Manufacturing Deflator Turned Negative
The MoSPI secretary said the manufacturing deflator cannot be understood simply by comparing broad inflation measures such as the Wholesale Price Index and Consumer Price Index.
"What has actually happened on the factory prices, and that's where the issue of double deflation comes in that in manufacturing, input materials form a very important component. And continuing with the example of automobiles, automobiles require a lot of iron, and now a lot more plastics and a host of other products are used. So what has happened, especially in the last three months, the input prices have increased significantly."
He explained the calculation using the example of an automobile that sells for ₹100, while the cost of its inputs is ₹60. The value added by the manufacturer would therefore be ₹40. But if input costs rise to ₹80-85 while the final price remains at ₹100 because companies are unable to pass on the higher costs to consumers, the value added at current prices falls sharply.
"But on the output side, corporates have not been able to pass on those price increases to the final consumer, and therefore, the final prices have not increased to the same level. So that's why when the value added is looked at, input prices, let us say, what was Rs 60 has now become Rs 80 or 85, and that output has remained at Rs 100, and therefore, the value added in manufacturing is only Rs 10 or 15."
That creates a gap between current-price and constant-price value addition. "So, therefore, when we look at constant prices, the value added is Rs 40. But when we look at current prices, the value added is only Rs 15. Therefore, it is much lower than the constant price value add. And that is why in manufacturing, you have seen that the current prices value addition, the deflator is negative."