Two recent pieces of news from the International Monetary Fund (IMF) about India are very important.
The first is that the IMF again projected strong economic growth numbers for India, suggesting that the country will remain one of the world’s fastest-growing major economies.
These projections were quickly highlighted by government officials, TV panels, and market commentators as evidence that India is firmly on a path of robust expansion.
The second piece of news is that the IMF itself recently evaluated India’s data quality across major economic indicators. The result should concern every policymaker, investor, and entrepreneur. The IMF gave India a “C” grade for its National Accounts Statistics — the very data used to calculate GDP growth.
The IMF gave India a “C” grade for its National Accounts Statistics — the very data used to calculate GDP growth.
The reasons for this rating were clearly listed:
(i) An outdated base year (2011–12)
(ii) Weak visibility of informal sector activity
(iii) Missing consolidated data from state and central governments
(iv) Dependence on proxies rather than ground-level measurement
To be clear, the IMF gave India better grades (mostly `B') in other areas such as inflation reporting, financial data, and external sector statistics.
But GDP — the most quoted number — received one of the weakest ratings because India’s national accounts simply do not capture the true structure of the economy – particularly the informal or unorganized sector.
And when we look closely at where the IMF gets its numbers from and how India’s GDP is calculated, the cracks begin to show.
In earlier articles, I highlighted a fundamental flaw in India’s GDP estimation process — the excessive dependence on the organised sector for data and the near-absence of real-time measurement of the unorganised sector, which still makes up a large share of the economy.
Unfortunately, the latest IMF projections continue this same pattern — relying largely on formal-sector data while the informal economy remains a blind spot.
A key driver of the IMF’s optimism is the belief that India's consumption growth is broad-based, pushing GDP upward.
But this assumption rests heavily on organised-sector indicators, such as:
(i) GST collections
(ii) UPI transaction volumes
(iii) Corporate sales
(iv) Credit card spending
(v) Urban labour market surveys
These reflect only the formal economy, which accounts for a little over half of GDP.
Meanwhile, the unorganised sector, which still employs the majority of workers, continues to face:
(i) Higher input costs
(ii) Tighter compliance norms
(iii) Reduced working capital
(iv) Falling competitiveness against large, organised players
(v) Weak job creation
Yet, the entire unorganised sector is treated as if it is expanding at the same pace as the formal sector.
But the most important point — and the one policy influencers keep missing — is this:
(i) The unorganised sector is not growing. It is declining.
(ii) This single reality overturns the rosy growth numbers presented so confidently every year.
Multiple independent indicators reinforce this trend:
(i) Rural wages have stagnated
(ii) SME credit stress remains elevated
(iii) MGNREGA demand remains at historically high levels
(iv) Rural FMCG growth is weak
(v) Employment gains are concentrated in low-wage gig roles
If the unorganised sector is flat or contracting, then India’s true GDP growth is significantly lower than official figures suggest.
The heart of the problem is methodological.
The unorganised sector is measured properly only once in five years.
For the remaining years, the government assumes that the informal sector grows at the same rate as the formal sector.
This was already questionable before 2016, but after:
(i) Demonetisation
(ii) GST rollout
(iii) Covid lockdowns
(iv) Rapid formalisation
(v) Digital compliance pressure
…the two sectors have completely diverged.
Thus, every year India reports high GDP growth, we must remember:
High formal-sector growth + silent informal-sector decline = inflated headline GDP.
The IMF’s own “C grade” indirectly acknowledges this.
For business owners, investors, and SMEs, this mismatch has serious implications:
(i) Your actual market size may be smaller than government estimates.
(ii) Demand in Tier 2/3/4 towns may be much weaker than headline data implies.
(iii) Sales projections based on official GDP growth may be overestimated.
(iv) Hiring and expansion decisions must be based on real market feel, not official optimism.
Many entrepreneurs often tell me that business on the ground doesn’t match the “7% growth” narrative. This gap between “reported growth” and “experienced growth” is the direct result of how India’s GDP is calculated.
There is no doubt the formal sector is expanding – especially large companies.
Digital payments, corporate profits, tax collections — all reflect real progress. But growth in half the economy cannot hide stagnation in the other half.
India’s future depends on better measurement, better data, and better visibility into the unorganised sector.
Until then, official GDP numbers will continue to paint a more optimistic picture than reality warrants.
As I have always said: Think positive — but think positive based on reality, not hope.
{This article by Tiny Philip is originally published in the Dhanam fortnightly, December 31st edition}