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Why is Modi telling us to save when economy’s robust? GDP growth story hides cautious household subplot

If Milton Friedman’s permanent income hypothesis is considered, true assessment for this quarter was not provided by MoSPI. This was determined by approach of cautious households.

New Delhi: On Tuesday, during a speech in Bishkek, the Prime Minister lauded the country’s 7.8% economic growth, the highest rate among major global economies, while simultaneously urging Indian citizens to reduce their gold purchases.

This juxtaposition raises questions about why an economy experiencing such robust growth would require its citizens to prioritise saving over spending. This apparent contradiction is not merely a minor detail in the current GDP release; it is the release itself.

Beneath the headline figure, two key indicators, namely, household spending and gold purchases, are both experiencing a subtle decline. These trends, which the 7.8% growth figure does not capture, reflect the actual sentiments of ordinary households regarding the future. This story contrasts with the optimistic portrayal presented on the day of the GDP release, highlighting a more nuanced story that merits attention.

Momentum, measured against itself

In the first quarter of the fiscal year 2027, real GDP increased by 7.8%, compared to a growth rate of 6.9% in the corresponding period of the previous year. This comparison is noteworthy.

In three of the last four quarters, growth rates have been recorded at or above 7.8%, with the peak reaching 8.6% in Q4 FY26, immediately preceding the current quarter.

This reflects a deceleration from a high base rather than a new acceleration, and confusing the two is a common error in growth reporting. Additionally, this is only the second quarterly report under India’s new 2022-23 base year, which replaced the decade-old 2011-12 series in February and incorporated double deflation for manufacturing.

This change constitutes a significant methodological enhancement in accordance with the UN System of National Accounts.........

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