An important experimental observation in InGaN laser diodes (LDs), which is not yet fully understood, is that the measured mode spacing of the lasing spectra could be one order of magnitude larger than that "calculated" from the known cavity length. The aim of this letter is to shed light on the nature of the mode spacing "anomaly" in InGaN LDs. We have derived a formula which accurately determines the mode spacing in InGaN LDs. Our analysis has shown that the discrepancy between the "expected" and observed mode spacing is due to the effect of carrier-induced reduction of the refractive index under lasing conditions and this discrepancy decreases and naturally disappears as the threshold carrier density required for lasing decreases. Since the carrier-induced reduction of the refractive index is expected only from an electron-hole plasma state, our results naturally imply that electron-hole plasma recombination provides the optical gain in InGaN LDs, like in all other conventional III-V semiconductor lasers. The implications of our results on the design of nitride optoelectronic devices are also discussed.