By R Gopalan and MC Singhvi
National Statistical Office (NSO) released the advance estimates for 2025-26 indicating annual GDP growth of 7.4%, with a decadal growth of 5.9% (2015-2026). The growth is fairly robust growth given the need for structural changes, global uncertainties and pandemic.
This would be the last GDP estimates of the current series based on 2011-12 since in February 2026, the statistics ministry proposed to release new series with 2022-23 as base.
There are three key critical concerns, besides the dated base, that are expected to be addressed in the new series to make these estimates more realistic. We look at these concerns and their outcomes.
Supply Use Tables Implementation
Firstly, the new base proposes to use Supply Use Tables (SUT) for eliminating the discrepancies in GDP estimates based on sector approach and the expenditure approach. SUT is available until 2022-23, the base year for the new series.
Major changes could occur in the expenditure side as the discrepancies get adjusted appropriately in consumption, investment and net trade.
The two major components of expenditure-side GDP, Private Final Consumption Expenditure (PFCE)and Gross Fixed Capital Formation (GFCF) indicate a lower CAGR during 2015-16 to 2022-23 in the revised estimates based on SUT compared to original estimates, though the difference is not significant.
The use of SUT-based changes, therefore, while eliminating discrepancies, may not lead to major realignment in GDP estimates. Both PFCE and GFCF do show a lower growth over the last 7 years and may indicate a downward bias.
Measuring Informal Sector Growth
Second important change is the use of data based survey of unincorporated enterprises or informal sector. Currently, informal sector data are derived using indicators largely as are in the domain of the formal sector. The new unincorporated
enterprises survey, a regular quarterly exercise, covers manufacturing, trade and services, but it doesn’t cover construction and agriculture. The informal sector was estimated at 27% of total GDP excluding agriculture and construction in 2023-24.
CAGR of the sector during 2015-16 to 2023-24 is 9% compared to the formal sector growth of 10.4%. The informal sector, based on the latest survey (October 2023 to September 2024), indicates an average annual growth of 5.6%.
Attributing this growth to the informal sector post 2015-16 results in nearly 80 basis points decline in overall GDP growth during this period. The share of informal sector in non-agriculture and construction GDP drops to 21%.
Addressing Price Deflator Issues
The third issue is the use of deflators. It is felt that single deflator, which National Accounts data currently used, fails to correctly estimate GDP. IMF and others have been advocating the use of double deflators, both output and inputs to arrive at Gross Value Added, mainly as the commodity prices of outputs and intermediates do not move together.
India adopts a hybrid system in estimating GDP, with 46.5% weight of sectors estimated in real terms and another 53.5%in nominal terms. Therefore, price indices are used as deflators for converting nominal GDP to a constant price GDP, while appropriate price indices are used to convert the real estimates to nominal prices as detailed below.
Appropriate price indices are, therefore, necessary in estimation of comparable GDP estimates at current prices (nominal) and at constant prices (real). Currently we use WPI for commodities and CPI for non-commodity segments. Both these indices have different mechanism for compilation.
While WPI uses first point of sale, CPI uses the final prices paid by the consumer at the last point. This results in sectoral estimates using different methodologies for deflators. The problem of comparability could be overcome if we have a comprehensive Producer’s Price Index (PPI) which covers both goods and services.
Further, CPI do not cover inputs and intermediaries and there would continue to have the need for proxy indicators.
The new series of GDP addresses the two issues of discrepancies in data between sectoral estimates and estimates based on expenditure. The issue of double deflators would only be partially addressed until a comprehensive PPI is prepared.