India’s new GDP series is an upgrade but it leave a few questions on the economy unanswered

This is the second major economic indicator after the consumer price index (CPI) to have seen a base revision. Both these indicators had been using 2011-12 as base year, rendering them more than a decade old. But similar to the CPI revision, the one in the national accounts is also not just a technical re-basing. It also makes several methodological changes and uses new as well as revised sources.

Besides using new data-sets, the two national surveys by the National Statistical Office (NSO) and administrative data from several ministries, the new series also uses revised rates and ratios for arriving at estimates of gross value added (GVA).

The use of outdated rates and ratios had been a long-standing criticism of national account estimates. Hence, revising them to recent years is likely to improve the quality of the data.

Among the new datasets that the revised series relies on are the Periodic Labour Force Survey (PLFS) and the Annual Survey of Unincorporated Sector Enterprises (ASUSE). Both of these are now carried out annually, which not only improves estimates in the base year but also future estimations. Their use is also important given the country’s large informal sector. The availability of these surveys helps capture a better picture of activity in the unorganized sector, compared to the earlier series.

The second major improvement is the adoption of double deflation as a method to arrive at GVA estimates, unlike in the earlier series. While the absence of producer price indices for many sectors, especially services, restricts its use, the revised series is able to adopt this measurement method for agriculture and manufacturing where data permits. For other sectors, it uses a volume extrapolation method.

These changes help improve our GDP and GVA estimates, thanks to better and more frequent data. The shift has resulted in revisions in national accounts aggregates for past years, with data released for 2022-23, 2023-24 and 2024-25.

One change that stands out is a downward revision in the estimates; nominal GDP in 2022-23 is lower by about 3% than in the old series and by 3.8% in each of the two subsequent years.

This is unusual but not surprising given the nature of changes. However, even a slightly smaller GDP poses a problem for the government as it alters fiscal deficits of the past and complicates the latest budget’s arithmetic too.

Also, estimates for private final consumption expenditure (PFCE) have been lowered by almost 10%. This again is sharp and indicates a smaller share of PFCE in GDP than earlier believed.

Also, overall growth rates between 2022-23 and 2024-25 for which final estimates are available have been slashed. Compared to the earlier three-year average of 7.8%, growth has been revised down to 7.25%. Much of this is due to a cut in 2023-24 growth to 7.2% under the revised series from 9.2% earlier. This decline comes despite the manufacturing sector’s faster growth under the new series.

However, the new series also raises questions on the structure of India’s economy and growth rate trends. One noteworthy aspect is how sectoral shares of GDP have changed. The share of agriculture in GVA now stands at 20% as against 18.1% in the earlier series. This share was 18.5% in 2011-12 by the last base revision and 19% in 2004-05 by the revision at the time. With an average growth of more than 6% since 2004-05, agriculture has seen an increase in its share rather than a decline.

Now take manufacturing. Its share declined from 17.4% in 2011-12 based on the earlier series to 14.7% under the new series in 2022-23. Services, of course, make up the bulk of GDP. A fuller analysis of some of these trends for a proper assessment of the health of the economy as well as the relative performance of sectors will have to wait for the back series to be made available later this year.

What is also important is that revisions in the CPI and national accounts just released are part of a broader exercise to overhaul the statistical database of the Indian economy. Two of these, a revised wholesale price index (WPI) and index of industrial production (IIP), are likely to be made available later this year with a new base year of 2022-23.

The updated data from these will likely improve GDP estimates further. More importantly, these together will allow for a better understanding of the structure of the economy and the drivers of change over time.

The author is associate professor at Jawaharlal Nehru University and visiting fellow at the Centre de Sciences Humaines, New Delhi.