In a move to improve how India compiles its Gross Domestic Product (GDP), the government will use the output Producer Price Index (PPI) for deflation in annual and quarterly GDP data, said Saurabh Garg, secretary, Ministry of Statistics and Programme Implementation (MoSPI).
“The ministry is planning to incorporate the new PPI series when compiling both annual and quarterly national accounts. The updated estimates may be released along with the GDP estimates for the April-June quarter of 2026-27,” Garg told FE.
The new index will bring India’s national accounts data closer to the international standard, but economists do not expect major changes in GDP growth rates, at least in the short term.
The output PPI will replace the WPI, as far as possible, a statistics ministry official said. “Broadly, the most appropriate deflator will be used, based on the sector and area. WPI in any case will get phased out,” the official said.
“The ideal measure is the PPI. In that sense it is a right measure by MoSPI to shift to PPI. Growth rate may not change much. But the size of real GDP may change,” said N R Bhanumurthy, director, Madras School of Economics.
Eliminating Distortion
As the government revised the GDP series earlier this year—updating the base year to 2022-23 from 2011-12 in the old series—the deflation method changed completely compared to the old series.
The government’s deflation methodology in the old series had drawn strong criticism, with the single deflation method—which does not separately adjust for changes in input costs and output prices—said to be distorting real growth estimates.
In the new series, single deflation has been completely eliminated, while double deflation has been adopted in sectors like manufacturing and agriculture. In other sectors where double deflation is not possible, single extrapolation is being used with WPI and CPI deflators used at a more detailed and granular level.
The WPI will now be replaced by the output PPI, while CPI will continue to be used at the granular level for several items.
The use of PPI in GDP deflation became possible only recently, after the Department for Promotion of Industry and Internal Trade (DPIIT) released the output, input, and services PPIs for the first time ever in June, along with a revised WPI series.
WPI and output PPI are closely related in nature and have shown similar trends in inflation so far. WPI inflation rose to 9.87% in June from 9.68% in May, while output PPI inflation rose to 9.57% last month from 9.38% in May.
The new GDP series also adopted a wider use of double deflation, which separately adjusts outputs and inputs using the relevant price indices, leading to more accurate measurement of real growth. In the old GDP Series, WPI was used for both output and input items.
The statistics ministry will also release the back series data based on the new GDP series by the end of this year, Garg said.