The Ministry of Statistics and Programme Implementation will on Tuesday release a new index to measure the change in output of the services sector, which makes up for over half of India’s economy and generates substantial employment.
The Index of Services Production will be released on a trial basis, providing data on the growth in output of the 19 sub-sectors of the services economy. The new index will have 2024-25 as the base year and will be released with a 60-day lag from the end of the reference month.
The index aims to address the need for a high-frequency indicator to measure the performance of the formal services sector. But compiling the index will not be easy.
Services are largely intangible and output cannot be measured through physical quantities, as is the case with industrial activity. This makes compiling the ISP much more complex than compiling the Index of Industrial Production.
“How do you define a product—that is the big challenge in services,” said Pronab Sen, former chief statistician of India. “Previously, too, there were attempts at ISP but they were dropped. Measuring production in services is very tricky.”
The government formed a Technical Advisory Committee on Indices of Services Production in 2004 and reconstituted it in 2010. The panel submitted its report in June 2019, recommending an index for only seven sub-sectors, which halted the compilation of a comprehensive ISP.
“Over the last decade, significant improvements have taken place in India’s statistical and administrative data ecosystem, making ISP compilation feasible,” the latest Technical Advisory Committee said in its report released earlier this month.
ISP compilation is feasible now primarily because of the availability of GST data on outward supplies of service-producing units and the launch of the Annual Survey of Incorporated Services Sector Enterprises. The statistics office will also use administrative data from railways, aviation, banking, and insurance to compile the ISP.
Goods and Services Tax (GST) data will be used to compile 15 of the 19 ISP sub-sectors. If GST is removed from any of these categories, it could result in the discontinuation of its ISP as well, according to the report. Information and computer related services will have the largest weight in the trial ISP at 21.91%, followed by retail trade at 18.49%.
Even in this latest attempt, sectors accounting for nearly 33% of the total GVA of the services sector have been excluded, such as public administration and defence, financial services of pension funds, and unincorporated sector-dominant services.
