India's new GDP series has implemented double deflation methodology, addressing a critical flaw in the previous system where nominal data was deflated only once for output but not for inputs. According to Business Standard, this internationally recognized approach separates volume changes in output and intermediate consumption, removing the assumption that input and output prices move broadly together. The method involves three basic steps: (1) Output is deflated separately using appropriate price indices, (2) intermediate consumption is deflated using its respective prices, and (3) real GVA is derived as real output minus real intermediate consumption. Double deflation is applied for 28 out of 30 compilation categories, with real GVA estimates for food products and pharmaceutical products compiled using volume extrapolation due to mapping challenges.
A fundamental challenge remains the input PPI data availability, as reported by Business Standard. India's statistical office previously lacked prices for factories' wholesale and retail transactions, along with data on thousands of production inputs. Mospi's own documents indicate that input PPI remains under trial, raising questions about its reliability for deflation calculations. The output PPI basket includes intermediate use products such as bauxite, coking coal, electricity, refined palm oil, cotton yarn, naphtha, phosphoric acid and cement, requiring granular data mapping with item-level PPI. Services account for most of the Indian economy, yet the new services PPI covers only seven sub-sectors, leaving significant gaps in coverage for the remaining services sectors.
For the manufacturing sector, nominal estimates for both output and intermediate consumption at annual level are compiled using robust data sources. Estimates for private corporations are based on MCA-21 data, public corporations use annual reports, and estimates for the unincorporated sector use Annual Survey of Unincorporated Sector Enterprises (ASUSE) and Periodic Labour Force Survey (PLFS) data. The Annual Survey of Industries (ASI) provides rich data sources for the input-intensive manufacturing sector, enabling detailed mapping of output and input items with item-level PPI. This framework aligns with practices followed in advanced economies like the US, Japan and the Eurozone, demonstrating international best practices in national accounts measurement.
According to Business Standard reports, Mospi addresses informal sector output through the new survey of unincorporated enterprises (ASUSE) and Periodic Labour Force Survey (PLFS). However, the quarterly ASUSE does not provide value added data, creating challenges in estimating informal sector GDP. The methodology for this crucial component remains unclear, particularly given the significant role of informal economy in India's overall economic output. Import volumes fell by 1% in the April-June quarter while the economy grew 8% and the import-dependent secondary sector expanded 10% in real terms, showing the complex relationship between nominal and real economic indicators.
According to the analysis in Business Standard, Mospi has released limited information through press releases and frequently asked questions, providing insufficient detail on methodological changes. Committee reports contain more detailed information, but implementation status remains unclear. The expert recommends that Mospi should release a comprehensive sources and methods document with detailed answers to open questions to restore confidence. Most importantly, rebuilding trust requires cooperation between stakeholders and Mospi to identify problems and find solutions, given the erosion of trust in official GDP data over recent years. As noted by experts, better statistics can sometimes look less intuitive than familiar inflation measures, but what matters is the quality, appropriateness and consistency of underlying data.
