New GDP Measurement: Everything You Need To Know

India has revised the base year for calculating gross domestic product (GDP) to 2022–23 from 2011–12. It has introduced a new estimation framework that draws on wider datasets and updated statistical methods. The change alters how economic output is measured and reported. Economists feel the new GDP framework can better reflect the structure of the economy.

Note that the government has published the new annual and quarterly GDP estimates under the revised series. This is for the period between 2022-23 and 2025-26. According to the data, the Indian economy registered a GDP growth of 7.8% in the Q3 of the current fiscal as against 7.4% during the same quarter in the previous fiscal year.

Under the new series, FY26 GDP growth is estimated at 7.6%. It is higher than the 7.4% projected in the first advance estimates released on 7 January.

Wider Data Pool, Deeper Coverage

The revised GDP series uses an expanded database to estimate output across sectors. Key additions include the following:

• Goods and Services Tax (GST) data to estimate the state-level output of private companies

• e-Vahan registration data to assess transport-related activity

• Public finance management system data for tracking government expenditure

• Annual survey of unincorporated sector enterprises

• Periodic labour force survey to better capture household and informal sector activity

Integration Of Supply And Use Tables

A significant technical change in the new GDP measurement is the integration of supply and use tables into GDP compilation. These tables reconcile total production with how goods and services are consumed, invested, or exported. In simple terms, the total supply must equal total use.

Experts feel this step can reduce discrepancies between GDP measured from the production side and the expenditure side. Such gaps have appeared in earlier series, particularly during periods of volatility.

Corporate Output Mapped By Activity

The new framework changes how corporate output is allocated across sectors. Previously, a company’s output was largely assigned to a sector based on its primary line of business. Under the revised method, activity-wise turnover data will be used to map value addition more precisely.

For companies with diversified businesses, this means output from manufacturing, services, or trading will be distributed as per the actual activity. They will no longer be clubbed under one segment.

Move To Double Deflation

One of the most notable changes is the shift from single deflation to double deflation. Deflation adjusts nominal values for price changes to derive real growth. Under the earlier single deflation approach, value added was adjusted using one price index. The new system deflates output and inputs separately. This provides a more accurate estimate of real value addition.

The revised framework also uses more detailed price indices. It draws from over 260 consumer price index categories instead of broad aggregates. Officials feel this can reduce distortions in real growth calculations, particularly during periods of sharp input cost swings.

Quarterly Data To Be Smoother

Quarterly GDP estimates will now be compiled using the proportional Denton method. This replaces the earlier pro rata benchmarking approach. The earlier method often resulted in sharp quarter-to-quarter movements due to benchmarking adjustments. The Denton method aims to rectify it and can make quarter-to-quarter comparisons more reliable.

Also, expanded GST data will support quarterly estimates, especially for services and trade. The financial sector will be measured using the Financial Intermediation Services Indirectly Measured (FISIM) approach. This estimates the value of financial services through interest rate spreads. This brings India’s practices closer to global statistical standards.

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Impact On Calculation And Economy

The government plans to release back-series data under the new methodology by December. This will allow comparisons of past growth rates on a consistent basis. The new framework could change sectoral growth patterns.

One may see revisions in historical growth rates and value addition across industries. States could also record different output levels due to GST-based estimation. More granular price indices and double deflation may change real growth trends in periods of high input cost volatility.

Sources

Fortune India

The Economic Times