India’s economy grew 7.8 per cent during Q1 FY27, comfortably eclipsing RBI’s own 7 per cent forecast. The temptation is to read this as an economy firing on all cylinders. Macroeconomic vulnerabilities rarely surface during pessimism; they accumulate quietly during optimism, especially when a strong headline masks what is brewing underneath. Retail inflation above the RBI’s 4 per cent target for two straight months, a trade deficit at a six-month high, the rupee rescued from a record low only through an unprecedented dollar-swap operation, government bond yields stuck near 7 per cent despite rate cuts, a trade deal with the US that remains unsigned seven months on, and fiscal populism, especially among states.

The task, therefore, is not to celebrate 7.8 per cent, but to use the room to address what the aggregate conceals. The most consequential figure in the GDP release was not 7.8 per cent, but the gap between that and nominal GDP growth of 10.3 per cent – an implicit GDP deflator of barely 2.3 per cent, against a retail inflation of 4.45 per cent, food inflation of 5.52 per cent, and wholesale inflation at 9.78 per cent. This is a statistical artefact of MoSPI’s new double-deflation method, which deflates output and inputs separately. When input costs outrun output prices, the sectoral deflator turns unrealistically low, mechanically inflating real growth. That does not make 7.8 per cent f ictitious.

But it should not b e emphatically used to argue that inflation is beaten – food and fuel remain hostage to the next shock. The RBI’s special dollar-rupee swap window, open June 8 to August 31, mobilised $136.37 billion – $127.2 billion from FCNR(B) deposits alone – pushing reserves to a fresh record above $740 billion. However, FCNR(B) deposits are........

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