India’s reset GDP numbers reveal an impressive growth momentum led by the factory sector

The new GDP series with 2022-23 as its base year pegs growth in 2025-26 at 7.6%, higher than 7.4% estimated under the old series with base year 2011-12. The slowdown of 2024-25 also turns out far milder, with GDP expansion slowing to 7.1% from 7.2% the year before, instead of 6.5% from 9.2%.

As for this fiscal year, growth in the third quarter ended December is now placed at 7.8%, a robust rate given how US tariffs began to kick in harder. Our growth impulses have been intact—and impressive.

The most heartening takeaway, though, is a shift revealed in the structural composition of this momentum. The manufacturing sector now leads from the front. It has long been a laggard, but recorded a double-digit pace in 2023-24 and is seen on course to do so again this year.

Some of this, doubtless, is the effect of reduced proxy use to estimate the informal sector’s output, as the ministry now has a tracker in its Annual Survey of Unincorporated Sector Enterprises for a relatively direct data feed for estimation. But some of it can plausibly be explained by the improved use of deflators to adjust for inflation and get a closer fix on value added in the factory sector.

As a note with this new data series makes clear, changes wrought by a base-year update differ significantly from regular revisions in National Accounts. Globally, the latter “are made only on the basis of updated data becoming available without making any changes in the conceptual framework or using any new data source, to ensure strict comparison over years.”

In contrast, base-year resets include an overhaul of the country’s output gauge to “capture structural changes in the economy, incorporate latest data sources, improve estimation methodologies and enhance coverage and accuracy.”

A proper analysis of trends over a longer haul awaits the release of ‘back-series’ data on earlier years, rather than just the three starting with 2023-24 released by the ministry.

But with average GDP growth marking three dots on a trot at clips above 7%, the latest Economic Survey’s conjecture on India’s potential growth rate having risen half a percentage point from 6.5% earlier does not seem misplaced.

The note lists several key improvements in the New GDP Series, two of which stand out.

First, sharper coverage of our vast informal sector, thanks to survey inputs, is a clear plus; especially in the context of a statistical haze over how K-shaped our covid recovery may or may not have been.

Second, to adjust for inflation, ‘double deflation’ of current values has been deployed in the farm and factory sectors (while other estimation methods are used elsewhere).

The use of separate ‘deflators’ for output and inputs helps us avoid distortions of value addition caused by price volatility in such raw materials as oil or metals.

However, the absence of a proper producer price index forces us to fall back on data from an outdated wholesale price index (base 2011-12), an anomaly that should be fixed once this index is rebased (as our retail price index recently was).

Even so, together with increased items in the deflator basket, we can expect greater stability in India’s growth numbers—with less ‘statistical noise’— to pave the way for better-informed policy.