India's key macroeconomic indicators are getting a major face-lift. From February, the government will roll out new data series for retail inflation and GDP, followed by a revised Index of Industrial Production (IIP) series in May. While the Consumer Price Index will use 2024 as the base year, the new GDP and IIP series will use 2022-23. Importantly, the items used to calculate the CPI and their weights will be revamped, while labour market indicators and government accounts releases will come with shorter lags.
Helpfully, a new Annual Survey of Service Sector Enterprises will be undertaken to measure the informal sector’s output, apart from an Index of Service Production to gauge overall economic activity. All these revisions are a significant step towards providing accurate and credible data, which is essential to improve policymaking and economic planning. Good data also helps investors, analysts and global institutions assess India’s economy precisely, enhancing transparency.
All these changes come in the backdrop of the IMF’s stern observations, which gave India’s national accounts a C grade and outlined the aspects that need an overhaul. Foremost among them is the outdated base year used to measure GDP. It is standard practice worldwide to revise the base year every five years. India, however, revises it once a decade, risking underestimation. Likewise, it uses wholesale price indices, heavily weighted towards commodities, as the price deflator, ignoring services. Further, informal sector activity is not measured directly but is instead imputed, assuming that its growth mirrors that of large industries. There are also sizeable discrepancies between the production and expenditure sides of GDP estimation, the absence of seasonally adjusted data, and insufficient granularity on investments. The government, however, disagrees with the IMF’s findings, pointing out that some economies with inferior data practices received a better overall score than India.
Above all, there is an intense debate about data accuracy and methodology. In 2015, when the GDP series was last revised, real growth stood at 7.1 per cent even as other high-frequency indicators were flashing red, sparking concerns about data credibility. The government must ensure accurate data estimation, adopt a five-year base revision cycle, and release seasonally adjusted GDP and CPI series. These are essential to distinguish a genuine economic slowdown from a predictable seasonal dip, and to reassert India’s commitment to credible and transparent data.