New Delhi: India overestimated its annual economic growth by up to two percentage points between 2012 and 2023, according to a new working paper.The Peterson Institute for International Economics published the report, authored by senior economists Abhishek Anand, Josh Felman, and Arvind Subramanian, in March 2026. The working paper states that the Indian economy’s growth during the boom years from 2005 to 2011 was conversely underestimated by one to 1.5 percentage points.The researchers note that this historical reassessment is intended to serve as a benchmark to evaluate the revised Gross Domestic Product (GDP) methodology introduced by the Union government at the end of February 2026.Anand is a Visiting Fellow at the Madras Institute of Development Studies, Felman is a principal at JH Consulting, and Subramanian is a Senior Fellow at the Peterson Institute and also the former Chief Economic Advisor of India. They estimate that from 2011 to 2023, the economy grew at four to 4.5% on average, rather than the officially reported 6%.The working paper highlights a sharp divergence between official GDP figures and actual economic activity. According to Figure 1 (see above), almost every key indicator – including bank credit, exports, electricity consumption, and tax revenues – posted double-digit annual average growth between 2005 and 2011 before collapsing in the 2012-2024 period. However, official GDP numbers depict a contradictory narrative, showing steady, uninterrupted growth even when actual spending and production slowed down.This compounding error significantly alters the picture of the average citizen’s standard of living. The authors estimate that as of 2025, the absolute level of real GDP is overstated by about 22%, and the level of real consumption by about 31%. Consequently, the average standard of living is significantly lower than official estimates indicate.The paper traces the misestimation to two primary methodological issues. First, the government used data from formal, registered companies to estimate the growth of the vast informal sector.The authors submit that unorganised enterprises – such as small shops and cash-based businesses – were disproportionately affected after 2015 by demonetisation, the implementation of the Goods and Services Tax, and the COVID-19 pandemic. Consequently, assuming that the informal sector grew at the same healthy pace as large corporations artificially inflated the economy’s overall performance.Second, the paper notes that the methodology relied on flawed inflation tools, known as deflators, to calculate ‘real’ growth. To find the real growth of an economy, statisticians must subtract inflation. However, the authors state that India’s tools were tied to raw material costs, particularly oil prices, rather than the final prices of goods sold to consumers.When global oil prices fell sharply, it reduced costs and boosted corporate profits. Because the government used the wrong inflation tools, this temporary boost in profit was miscounted as an actual increase in the physical volume of goods produced.The above chart breaks down the scale of the mathematical corrections applied by the authors. By adjusting for the two main errors – the flawed inflation tools (deflators) and the overestimation of the informal sector – the “True” economic output drops from the official 5.9% to an estimated 4.0 to 4.4%.“The net result of the deflator and data problems was that real GDP growth was overestimated for the post-2011 period,” the working paper states.The economists observe that while the National Income Accounts methodology revised in January 2015 aimed to align with the United Nations System of National Accounts, the reliance on inadequate data sources and inappropriate deflators compromised the estimates.Subramanian, one of the authors of the paper and also the former Chief Economic Advisor to India told Karan Thapar in The Interview for The Wire, that the old methodology, which came into operation in 2015, overstated GDP growth between 2011-12 and 2023-24 by 1.5-2 percentage points and between 2004-05 and 2011-12 it underestimated growth by 1-1.5 percentage points.This misreading of India’s economic performance had two major policy consequences, the paper observes. First, it complicated the calibration of macroeconomic policy, occasionally signaling that the economy was strong when it was actually weak. Second, it reduced the urgency for economic reforms.The authors suggest that the revised growth rate of four to 4.5% resolves several recent macroeconomic “puzzles.” They state that the persistent weakness in private investment, stagnant factory capacity, and tepid employment growth are easily explained by the fact that the economy was simply not growing as fast as officially reported.