With the release of the Index of Services Production, India has taken a major step towards measuring the performance of its largest economic sector with greater precision. The monthly indicator will measure activity across 19 services segments. Until now, the sector that contributes nearly 60 percent of India’s GDP was tracked far less frequently. So the ISP fills a gap among India’s economic indicators that has been felt for long. It complements the Index of Industrial Production to provide a more comprehensive picture of economic activity and augments the list of indicators used for compiling national accounts statistics.
The first release of the ISP states that this April, as many as 14 of the 19 segments recorded double-digit growth over the previous April, with accommodation and food services emerging as the fastest-growing at 37.2 percent. Barring air transport (-13.9 percent) and rail transport (-0.4 percent), all other sectors were in the positive territory. It must be noted that eight sectors dominate the trial index, accounting for 86.8 percent of the total; so they can inordinately influence the sectoral picture. Wholesale and retail trade together account for 23 percent of the basket, followed by information services at 22.5 percent, and administrative and support services at 15 percent.
The data for compiling the index is currently sourced from two channels—GST filings and administrative sources for sectors such as air transport, railways, banking and insurance. Since GST data is available in value terms, the statistics ministry has employed various deflators such as the Wholesale Price Index, Consumer Price Index (CPI), services CPI and other sector-specific CPIs to convert nominal values into real production estimates.
Though it’s an effort well begun, the biggest limitation of the ISP in its present form is that it covers only formal segments, without taking into account the informal segments that remain a significant component of India’s services landscape. Moreover, key sectors such as health and education are yet to be included. The statistics ministry plans to incorporate these sectors in future releases using data from the Annual Survey of Incorporated Services Sector Enterprises.
As the ISP evolves, expanding sectoral coverage and improving data quality will be crucial to make it a reliable barometer of India’s service-led growth. That will enhance policymakers’ ability to monitor trends and take informed decisions based on much more timely and granular data than available at present.