What is GDP and why change the base year?
GDP measures the total value of goods and services produced in an economy over a specific period. It serves as a key gauge for policymakers and investors, shaping interest rate decisions, fiscal planning and sectoral assessment. Over the past decade, India has seen the introduction of the goods and services tax (GST), shifts in household consumption patterns and availability of improved and more frequent surveys. With structural shifts, an older base year framework becomes dated; updating it ensures real growth is measured against a more relevant benchmark.
While the ministry targets a five-year revision cycle, it found 2017-18 unsuitable as GST was introduced then, while 2019-20 and 2020-21 were impacted by the Covid-19 pandemic and 2021-22 recorded significant rebound effect.
What’s new?
The revised series has incorporated various new data sources to better capture economic activity in the country.
∙ GST data for regional output of private corporations∙ e-Vahan to estimate transport related expenditure
∙ Public Finance Management System to improve government expenditure measurement
∙ Annual Survey of Unincorporated Sector Enterprise and Periodic Labour Force Survey to capture household activity.
Further, to minimise discrepancies between GDP measured from production and expenditure, the new series integrated supply and use tables. These tables ensure that what is produced in the economy matches how it is used.
Precise corporate classification
The new framework uses activity-wise turnover data of companies to capture value addition across sectors, instead of assigning output based on a company’s dominant activity.
End of single deflation, quarterly estimates
One of the major changes is the elimination of the single deflation method. Double deflation is now applied to manufacturing and agriculture, and deflators will be used at a more detailed level, with more than 260 granular level Consumer Price Index categories for different goods and services. Quarterly GDP estimates will now be derived using the proportional denton method, replacing the earlier pro rata benchmarking method, to remove artificial jumps in the data. It will also use expanded GST data, adopt a FISIM (Financial Intermediation Services Indirectly Measured)-based approach for financial services and refine deflation by using item and sector-specific price indices instead of aggregate deflators. The FISIM method is considered more appropriate for an internationally standardised valuation of financial services.
What happens next?
The ministry is expected to release back series data under the new methodology by December. Additionally, it will release a detailed report on methodology and data sources used in compilation of new series in the next few months. India compiles GDP in line with the System of National Accounts 2008 (SNA), the globally recognised framework. The United Nations Statistical Division is transitioning towards SNA 2025, which countries are expected to adopt around 2029-30. India plans to align with the updated standard in its next base revision cycle.