New GDP Series Upgrades FY26 Growth to 7.6%

Syllabus: GS3/Economy

Context

• According to the new series, the gross domestic product (GDP) is estimated to grow at 7.6% during the current fiscal.

About

• The new series has revised downward the growth for 2023-24 to 7.2% from the 9.2% estimated in the old series, and has revised upward the growth for 2024-25 to 7.1% from the earlier estimate of 6.5%.
• The base year for GDP Estimates has been revised from 2011–12 to 2022–23 to better reflect India’s evolving economic structure.
• The revised GDP series strengthens estimation by integrating new, improved data sources.

How GDP is Calculated?

• India’s GDP is calculated using two methods: the factor cost method and the expenditure method.
  • The factor cost method evaluates performance across eight industries, including agriculture, manufacturing, and financial services.
  • The expenditure method examines spending in areas like household consumption and government costs to assess economic performance.
• The Central Statistics Office under India’s Ministry of Statistics and Program Implementation manages GDP data collection.
• India’s GDP data is released quarterly with a two-month lag and annually on May 31.
• Contribution of Sectors: The largest contributor to India’s GDP is the services sector, which accounts for 61.5% of GDP.
  • The next largest contributor was the industrial sector (23%) and then the agriculture sector (15.4%).

What is Base Year?

• A base year is a benchmark year used for comparison in economic and statistical calculations. 
• It provides a reference point against which current values of indicators like GDP, CPI, and IIP are measured to track real changes over time.
• Significance: 
  • It allows us to remove the effect of inflation and see real growth.
  • Ensures that the data reflects the current structure of the economy, consumption patterns, and prices.

Concerns with India’s Statistical Architecture

• GDP Methodology System: India’s GDP calculation method is globally accepted but the real problem is weak and outdated supporting statistical systems.
• Manufacturing Data Distortion: Corporate manufacturing is measured well and is performing strongly but Informal manufacturing is poorly measured causing discrepancy in data.
• Growing GDP Discrepancies: The gap between production-side and expenditure-side data in GDP is widening. It is caused by uneven data quality and outdated weights.
• Gap in GVA and IIP: IIP tracks physical output, not value added; this divergence reflects measurement limits, not economic slowdown.
• IMF Rating Paradox: India scores well on GDP methods but poorly on overall statistical quality. It shows the gap between good methodology and weak data ecosystem.
• Need for Statistical Modernisation: The economy has evolved faster than its statistical tools, the current system cannot fully capture structural change.

2026 Base-Year Revision as an Opportunity

• Shift away from commodity-flow approach: It will move away from the commodity-flow method for estimating consumption across most items.
  • Under the earlier framework, fixed ratios derived from a 2011–12 study were used to allocate commodities between intermediate consumption, final consumption and other uses.
  • The revised system instead uses dynamic rates and ratios, allowing estimates to evolve over time as consumption patterns change. 
• Elimination of ‘Discrepancies’: MoSPI plans to integrate Supply and Use Tables (SUTs) directly into annual GDP compilation.
  • Supply and use tables show how different goods and services are supplied by domestic industries and imports and how they are distributed between different intermediate or final uses, including exports. 
  • This approach aims to limit discrepancies in early estimates and fully eliminate them in final estimates.
• Use of Digital and Administrative Data: Increased reliance on datasets such as;
  • e-Vahan (vehicle registrations).
  • GST and other administrative records.
• Updated Surveys as Data Backbone: Key surveys feeding into the new series include;
  • Household Consumption Expenditure Survey (HCES) 2022–23 and 2023–24.
  • Updated surveys of formal and informal enterprises.
  • These are expected to offer more granular insights into consumption behaviour and production activity than earlier benchmarks.
• Sectoral Coverage of Revised Framework: The revised quarterly compilation framework has been aligned more closely with the Annual National Accounts methodology in terms of sectoral classification, deflation strategies, and estimation practices.
  • Inclusion of Hired Domestic Workers in GDP Estimation.
  • The new series includes unincorporated enterprises, self-employed individuals and informal workers.

Way Ahead

• The revision of the GDP base year to 2022–23 marks a significant step in aligning India’s national accounts with the realities of a rapidly transforming economy. 
• The new series provides a more accurate, consistent and comprehensive measure of economic activity.
• By updating the base year, and eliminating discrepancies the new framework is better aligned with the realities of a rapidly formalising and digitising economy.

Source: TH