Explainer: Why India needs an index of services production

What is the Index of Services Production (ISP)?

THE ISP IS a short-term indicator intended to measure changes over time in the real volume of output produced by service industries relative to a specified base period. The proposed base year for ISP is 2024-25. With this, India’s statistical system is poised to fill up a major information gap by covering the services sector which has played a relatively growing role in India’s growth narrative.

The Technical Advisory Committee has recommended a fixed-weight Laspeyres volume index (a weighted arithmetic average of quantity changes over time, utilising base-period values as weights), broadly consistent with the IIP approach, with weights based on sectoral gross value added (GVA) shares.

The ISP will combine quantity indicators for some activities, such as railways and air transport, with value indicators for many other services, deflated to remove the effect of price changes. It is expected to strengthen India’s statistical architecture and add to the credibility of its monitoring framework.

Why does India need a services-sector equivalent of the IIP?

A high-frequency reading of the economy cannot remain centred mainly on industry when services are the principal driver of output, growth, employment, investment and exports. The Index of Industrial Production, or IIP, has long provided a measure of short-term industrial activity.

By contrast, there has been no comparable monthly indicator for services, even though services have contributed to more than half of India’s GVA since 2013-14 (2011-12 real GDP series). Under the 2022-23 series,

during 2022-23 to 2025-26, the share of services sector in real GVA averaged slightly over 52%.

So far, the absence of an equivalent services indicator has constrained the ability of analysts and forecasters to assess or predict India’s overall growth momentum on a high frequency basis. The ISP and IIP together will make the short-term assessment of India’s economic activity balanced and comprehensive.

GDP forecasting set to improve

The ISP will improve measurement by using India’s strengthened statistical data ecosystem. Aggregated GST data on outward supplies can be used for several formal service activities because, in services, production generally results directly in sale or consumption.

For sectors like railways, air transport, banking and incorporated services, administrative data would provide the core input for ISP. This will be supplemented by usage of data from Annual Survey of Incorporated Services Sector Enterprises (ASISSE), launched for the first time in April 2026.

Sectors to be included in ISP

The ISP will include wholesale and retail trade, repair and maintenance, road and water transport, warehousing and support activities for transportation, accommodation and food services, postal and courier activities, telecommunications, information and broad-casting, banking, insurance, real estate, information and computer-related services, professional, scientific and technical services, administrative and support services, and arts, entertainment and recreation.

Health and education are proposed to be incorporated later through ASISSE. There would be initially some limitations in the coverage. Thus, public administration and defence, ownership of dwellings, parts of financial services, membership organisations, personal services and other activities dominated by non-market or informal characteristics remain outside present coverage.

How ISP & PMI Services differ

PMI services and ISP serve different analytical purposes. PMI Services is a survey-based diffusion index compiled from responses on whether business conditions have improved, deteriorated or remained unchanged compared with the previous month. A reading above 50 indicates expansion, while a reading below 50 indicates contraction.

The ISP, by contrast, is a production-volume index based on administrative and statistical data, converted into real terms through appropriate deflators. PMI is a timely signal of business conditions while ISP is a measure of output of services.

How can this help policymakers, RBI?

For policymakers, including the RBI, the ISP can become an important monthly gauge of services-sector momentum. It can support nowcasting, business-cycle assessment, sectoral monitoring and interpretation of demand conditions. It will critically support the information provided by national accounts.

Over time, as data gaps are bridged and Services Producer Price indices improve, the ISP can become a stronger tool for monitoring growth, assessing policy transmission and improving macroeconomic surveillance in India particularly since the share of services sector in total GVA is expected to progressively increase.

The writer is chief policy advisor, EY India. With inputs from Ragini Trehan, senior manager, Tax and Economic Policy Group, EY India

Disclaimer: The views expressed are the author’s own and do not reflect the official policy or position of Financial Express.