Real, nominal and the deflator

Every GDP figure is published twice. Knowing which one you are holding is most of the skill in reading them.

Two prices for the same output

Nominal GDP, or GDP at current prices, values this quarter's output at this quarter's prices.

Real GDP, or GDP at constant prices, values the same output at the prices of a fixed base year — currently 2022-23 for India's national accounts.

The difference matters because nominal GDP rises for two quite different reasons: more things were produced, or the same things cost more. Only the first is growth in any sense a person cares about.

For April to June 2026:

Q1 2026-27	Level	Growth
Nominal GDP, current prices	₹88.27 lakh crore	10.3%
Real GDP, constant 2022-23 prices	₹81.36 lakh crore	7.8%

Same quarter, same economy, two figures ₹6.91 lakh crore apart. The real figure is smaller because 2022-23 prices were lower than 2026 prices, so the same output valued at them comes to less.

The deflator falls out of the gap

The ratio of the two is the implicit price deflator — a price index covering everything the economy produced.

deflator growth = (1 + nominal growth) ÷ (1 + real growth) − 1
                = 1.103 ÷ 1.078 − 1
                = 2.3%

It is called implicit because nobody collects it directly. It is whatever is left over once real and nominal have each been estimated, which means it inherits the uncertainty in both.

Note the method: a ratio, not a subtraction. Subtracting gives 2.5% rather than 2.3%, and the error runs the same way as it did in chapter 6 of the inflation subject — always flattering, always in the direction of making the gap look bigger than it is.

Three official inflation numbers, and they do not agree

Now put the deflator beside the measure the inflation subject spent six chapters on.

Measure	Figure	What it covers
GDP deflator, Q1 2026-27	~2.3%	Every good and service produced in India
CPI, September 2026	5.54%	A fixed basket of what households consume
CPI food, September 2026	7.74%	The food part of that basket

Three official numbers from the same ministry, and the widest pair is more than five points apart.

Two things are going on and only one of them is interesting.

They cover different periods. The deflator above is April to June; the CPI figure is September. Some of the gap is simply that.

They cover different things, and this is the real reason. Four differences, each of which pushes the two apart:

Coverage. The deflator includes machinery, construction, exports, government services — everything produced. CPI includes only what households buy. A quarter where capital goods prices are flat and vegetable prices are up 50% will show a low deflator and a high CPI.

Imports. CPI covers imported goods people buy, because they are consumed here. The deflator excludes imports, because they were not produced here — they enter the accounts as a subtraction. So a fall in global oil prices lowers CPI and can raise the deflator.

Weights that move. The CPI basket is fixed until rebasing; the deflator's weights are whatever was actually produced this quarter. The deflator re-weights itself continuously, the CPI does not.

Different price types. Much of the deflator rests on producer prices — the new Producer Price Index series that the 2022-23 base brought in — rather than retail prices.

So neither is wrong and neither is a check on the other. They are answers to different questions, and the honest statement is the one this course keeps arriving at: a number is information only with its definition attached.

Which one to use

For your salary, your savings and your spending: CPI. You buy a household basket, not a slice of national output. Chapter 6 of the inflation subject does the arithmetic.

For the economy's output: the deflator, implicitly, by using real GDP. You do not usually compute it; you use the real series and the deflation has already been done.

For comparing the two over time: neither alone. A long period in which the deflator runs well below CPI is telling you something about the relative prices of what India produces and what Indians consume, and that is an interesting question rather than a discrepancy to resolve.

A sectoral example worth having

The deflator is not uniform across the economy, and the primary sector in this quarter makes the point.

At current prices the primary sector — agriculture, livestock, forestry, fishing, mining — grew 9.0%. At constant prices it grew 2.9%. The implied price rise for that sector is therefore about 5.9%, more than twice the economy-wide 2.3%.

Which is the same fact the inflation subject reported from the other end: food inflation running at 7.74% against a 5.54% headline. Agricultural prices were rising fast, so a sector whose nominal output grew 9% had only grown 2.9% in things.

That is the deflator doing exactly its job — separating "more was produced" from "the same was produced and cost more" — and showing that the answer differs enormously by sector.

The point

Nominal GDP values output at today's prices and real GDP values it at base-year prices, currently 2022-23. The gap between their growth rates is the implicit GDP deflator, which for Q1 of 2026-27 was about 2.3%. That is not the same thing as CPI inflation of 5.54%, because the deflator covers everything produced rather than what households consume, excludes imports, re-weights itself every quarter and leans on producer prices. Use CPI for your own money and real GDP for the economy's output.