Reliable macroeconomic statistics are fundamental to economic governance. Last year, the IMF, even while revising India’s GDP growth projections upwards, assigned a “C” rating to our National Accounts Statistics in its Data Quality Assessment due to methodological weaknesses. It did not mean that our GDP numbers were incorrect, but rather reflected the inadequacy of our statistical systems compared with international practices. As we know, GDP is the market value of all goods and services produced in an economy over a year.
There are various methods to measure it; a commonly used measure is the production method recommended by the UN System of National Accounts 2008 (UNSNA), which calculates the gross value added (GVA) at basic price and then adds taxes, which increase the market prices, and deducts subsidies, which reduce the market prices. Thus calculated, GDP at market price is then converted into real GDP by dividing it by the GDP deflator, which represents the inflation compared to the base year.
This is where we get into problems, because GVA again is the difference between the final output and the intermediate consumption, and they need different deflators. Many OECD countries use what is called the double deflation method, which deflates output and intermediate consumption separately, the former by using Output Price Index and the latter by Input Price Index. In contrast, in India, we use a single price index to deflate both. It causes problems because if input prices rise faster than output prices or otherwise, single deflation can overstate or understate real growth.
The problem is particularly significant in manufacturing, which uses raw materials and many imported components, being heavily integrated into global value chains, but it also affects services like software, cloud services, telecommunications infrastructure, etc., whose prices may change differently from final service prices. In India, national accounts and price indices are calculated relative to a base year, which serves as the benchmark for comparing economic activity and price levels over time. However, economic structures evolve continuously, new industries emerge, consumption baskets change, and technology alters production patterns. If statistical frameworks continue to rely on outdated base years, they may fail to capture these structural transformations.
While we use a particular base year, 2011-12, till now, in most OECD countries, real GDP is estimated by using chain-linked volume measures, which update base year weights annually, thus avoiding distortion from outdated price structures. For India, the GDP estimation poses further complexity because of the huge share of the informal economy, which employs over 80 per cent of our workforce and contributes around 50 per cent of our GDP, for which there is no reliable data; proxies have to be used instead, which often cannot capture the ground realities. During the last decade, India has witnessed many remarkable changes.
The phenomenal rise of digital services, including online commerce, fintech, digital platforms and AI, the formalisation of the economy because of GST and demonetisation, the rise of the start-up and innovation economy, expansion of service exports, the infrastructure and logistics transformation, and altered household consumption patterns due to all these have completely transformed our economic landscape. The 2011-12 base really needs to be updated urgently to reflect these realities. So, in February 2026, India proposed a major revision in estimating its most important macroeconomic metrics, by adopting 2022-23 as the new GDP base year, following the availability of 2022-23 data from Annual Survey of Industries (ASI), Annual Survey of Unincorporated Sector Enterprises (ASUSE) and the Household Consumption Expenditure Survey (HCES), as well as updated private corporate sector database of the Ministry of Corporate Affairs (MCA21, Version 3).
Side by side, a new Consumer Price Index (CPI) series with 2024 as the base year has replaced the earlier 2012-based price index. This was a comprehensive overhaul of our macroeconomic data architecture with methodology improvements to align with global statistical standards such as the UNSNA. We now have additional data from the GST Network, the technological backbone of GST, from the government’s Public Financial Management System (PFMS), and many digital transaction databases. It has also enabled the CSO, for the first time, to apply double deflation to a few sectors like registered manufacturing, electricity, gas, and formal mining, etc.
For agriculture and the informal sector, however, there is no alternative yet to a single deflator. The Index of Industrial Production (IIP), which measures industrial activity in the country, is also waiting to be updated from 2011-12 to a 2022-23 base. Earlier, private household consumption was used as a measure of demand in the economy; now, demand will be directly computed from the household consumption expenditure survey. While EPF/ESIC data will track formal employment, the contribution of the informal sector will be gauged from the ASUSE database as well as the Periodic Labour Force Survey (PLFS) data. Contribution of the digital economy will be captured from the respective databases, and e-Vahan and FASTag data will capture the logistics sector’s contribution, while PFMS data will accurately capture the government sector’s contribution to GDP.
As regards the CPI, which is a weighted index, apart from base-year changes and basket updates, there are also changes in weights, besides expanded price collection methods. The revised Consumer Price Index basket contains 358 items, including 50 services, compared with 299 items in the 2012 index. Prices of these items are aggregated into detailed CPI subgroup indices, some of which are used as price indicators (deflators) in the estimation of real GDP. Food and beverages earlier claimed a weightage of 45.86 per cent in the CPI basket; now it is only 36.75 per cent, while weightage on housing has increased from 10 to 17.66 per cent, reflecting that with rising incomes, households spend relatively less on food. Inflation will now become less sensitive to food price shocks such as in monsoon-related spikes.
New services like OTT subscription, airline tickets, digital services and online purchases have been added, while obsolete items like VCR have been removed. An important improvement was the creation of three CPI indices: CPI-Rural, CPI-Urban and CPI-Combined (headline inflation); this combined CPI will now be used by the RBI as the official inflation measure for monetary policy. This replaces the earlier four indices for industrial, agricultural, rural, and urban non-manual employees. This also aligns with the UN-prescribed COICOP 2018 (Classification of Individual Consumption According to Purpose) framework, replacing the older six-group structure with a more granular 12 divisions. The revised system will now use 500-600 price indicators from CPI and WPI components, compared with about 180 deflators used earlier.
This greater granularity improves the precision of real GDP calculations. The IMF has welcomed the enhanced transparency and accuracy this new system will bring and has indicated that India’s rating may eventually be upgraded once the new system becomes fully operational. The revision has resulted in updating our growth rates for the past several quarters. The new series has revised the GDP growth for FY 2024 to 7.2 per cent, from 9.2 per cent in the old series, while for FY 2025, the growth has been revised upwards from 6.5 to 7.1 per cent. For the current fiscal, the growth estimate has been revised from 7.4 per cent earlier to 7.6 per cent now.
But the most remarkable has been the dramatic improvement in the manufacturing sector’s growth; it has delivered an impressive 13.3 per cent growth in Q3, FY2026, up from 10.8 per cent in the same quarter last year. While stronger manufacturing growth was expected from the IIP data, this has outperformed the best estimates of statisticians. Overall, the secondary sector is expected to grow by 12.5 per cent in FY 2026, compared to 8.5 per cent in the previous year, while the primary sector will slow down to 2.8 per cent from 5 per cent in the previous year.
While the revised framework promises greater accuracy and alignment with global statistical standards, challenges remain regarding data continuity, managing the increased methodological complexity from using many databases, transparency, and measurement of the informal economy. In the long run, the modernization of data architecture will certainly lead to more informed policymaking and economic governance, and stronger integration of India into the global economic system.
(The writer is a commentator, author and academic. Opinions expressed are personal)