In its latest monetary policy review concluded this week, the Reserve Bank of India (RBI) raised its forecast for India’s GDP (Gross Domestic Product) growth rate for the current financial year by 40 basis points to 7.1%. In other words, RBI now expects the size of India’s economy to be 7.1% more by the end of March 2027 as compared to the level reached as of March-end 2026.At one level, this shows the Indian economy’s tremendous resilience in the face of growing geopolitical challenges and uncertainties — ranging from US-Iran war and high crude oil prices to deficient monsoon and high temperatures due to the El Niño phenomenon.But behind this upgrade is a story of yo-yoing forecasts. For instance, at the start of the financial year in April, RBI expected GDP to grow at 6.9%. Then, in the next policy review in June, it rolled it back to 6.6%, before moving it up to 6.7% in August and 7.1% now.With half the year still left, it is anybody’s guess how things may pan out, especially since RBI has now ruled out interest rate cuts and is instead looking to raise them in an attempt to contain inflation.But the frequent swaying brings into sharp relief the gap between forecasts and India’s actual growth rate.Growth forecast surveysThe forecasts are significant as they set an initial expectation for all observers. Over the past few years, the actual growth rate has repeatedly beaten professional forecasts about India’s economy, and this repeated over-achievement had a role to play in giving a sense that India’s actual growth rate was not credible. The question being: How can the economy beat the forecasts every time?To understand what has been happening, it is better to look at the forecasts by RBI’s panel of professional forecasters. Since September 2007 — that’s over the past 20 years — the central bank has been conducting a survey of professional forecasters.Story continues below this adAlso Read | India’s GDP growth beats RBI forecast in June quarter, expands 7.8%This survey is done every two months and involves some of the most respected economists tracking the Indian economy for top banks (such as State Bank of India and Citigroup), credit rating agencies (India Ratings & Research, CareEdge Ratings) and research organisations such as the Centre for Monitoring Indian Economy. In the latest survey round, there were 46 such economists who provided the forecast.To understand if there is any trend, we have looked at the median forecast for real Gross Value Added (GVA) in RBI’s survey done in March each year. Forecasts vs actual performance.The GVA is a better variable than GDP to look at forecasts. This is because GDP is arrived at by taking the GVA and then adding the taxes earned by the government and removing the subsidies from it. Since taxes and subsidies are entirely at the government’s discretion, it is better to compare GVA forecasts with “actual” GVA to ascertain if there is a pattern.The median value is the mid-point of all the forecasts.Story continues below this adLast, the actual data compared here belongs to the 2011-12 series because that is only one for which data is available for past years.What the trend showsThe table above shows a clear trend. Up until the 2021-22 financial year, the actual GVA growth rate mostly turned out to be lower than what the professional forecasts suggested at the start of the financial year.Even if one keeps 2020-21 aside because all forecasts made in March were rendered useless by the start of April, thanks to the rapid manner in which Covid-induced lockdowns shut down the economy, the gap was quite significant in many years — 2017-18, 2018-19 and 2019-20, for instance.ExplainSpeaking | Will the Indian economy’s size triple in next 10 years?But since FY23, more often than not, the actual performance has been better than the forecasts. In fact, the divergence in growth rates continues to be there even if one looks at the actual data from the new data series with the base year of 2022-23.Story continues below this adMadan Sabnavis, chief economist at Bank of Baroda (one of banks that is part of the RBI panel), has a simple explanation for this trend.“Up until the Covid year (2020-21), it was the case of the economy doing well and therefore we (forecasters) tended to be over-optimistic. Since 2022, however, there’s been a lot of turmoil starting with the Russia-Ukraine war, the crude oil crisis, then Israel, then the tariffs last year and now the US-Iran war. As such, we tend to be more conservative with our forecast,” he says.Graphs, Data, Perspectives | US Treasury yields at 25-yr high: What are bond yields, what happens when they riseHowever, there is one year that still puzzles everyone: 2016-17. On paper, 2016-17 data suggests hardly any change between the forecast made in March 2016 and the actual growth rate for the year that ended in March 2017.But the truth is that the median forecast in March 2017 — the month when the financial year was ending — had fallen from 7.7% (made in March 2016) to 6.7%, and yet the actual GVA grew by 8%. It is notable that the government announced demonetisation of 86% of the money supply in November 2016 — a move that should have dented the economy.Story continues below this adThe economy may not have been dented in 2016-17, but, seen from this prism, this may explain the progressively underwhelming performance in the next three years — FY18, FY19 and FY20 — even before Covid-19 hit the economy.