India’s New National Accounts Methodology

Syllabus: GS3/Economy

Context

• MoSPI released the 8th revised National Accounts Series with 2022-23 as the base year in 2026, introducing methodological changes, notably double deflation in manufacturing GVA.

What are National Accounts?

• National Accounts Statistics (NAS) provide a systematic picture of an economy’s production, income and expenditure. 
• They measure aggregates such as GDP, GVA, consumption, investment, saving and external trade, following the framework of the UN System of National Accounts (SNA).

Evolution of Base Year

• India has revised its national-accounts base year periodically.

• The objective is to incorporate structural changes, improve data sources and ensure that constant-price estimates better represent the contemporary economy.

Calculation Methodology

• GDP can be viewed through three approaches:
  • Production Approach: GVA of industries + taxes less subsidies on products.
  • Expenditure Approach: Final consumption + gross capital formation + exports − imports.
  • Income Approach: Compensation of employees + operating surplus/mixed income + taxes less subsidies.
• For real GDP/GVA, current-price values need to be adjusted for price changes through appropriate deflators.

Key Change: Double Deflation in Manufacturing

• Under the earlier approach of using a single price index, nominal manufacturing GVA is converted into real GVA using an aggregate deflator.
  • The 2022-23 series introduces double deflation for manufacturing that separately adjusts:
    • Value of goods produced by manufacturers, and
    • Cost of inputs consumed in production.
• MoSPI uses ASI data and elementary item-level output Producer Price Indices (PPI) based on ex-factory prices, released by the Office of the Economic Adviser, DPIIT.
• The output PPI covers both final and intermediate goods, including wheat, milk, bauxite, coking coal, electricity, refined palm oil, besan, cotton yarn, sacks/gunny bags, leather, naphtha, phosphoric acid, cement and semi-finished iron and steel.
  • Thus, the output price of one industry can serve as an input price for another.
• Items representing 80% of output and input value are selected after ranking by value. ASI-derived weights are then used to deflate individual items separately.
• Two of the 30 manufacturing categories i.e. processed food and oils and pharmaceuticals are excluded because imported-input shares are high and direct mapping with elementary output PPI is difficult.
• For service inputs without PPIs, consumer prices and implicit deflators are used.

Other Important Changes

• The new series revises the treatment of defined-benefit pensions by estimating the present value of pension entitlements accruing to serving government employees, rather than using pension payments to retirees as a proxy.

Significance

• Double deflation can provide a more theoretically appropriate measure of real manufacturing GVA, because changes in both output prices and input prices are captured separately. 
• Greater item-level granularity can improve consistency between production and price statistics.

Concerns and Issues

• A major concern is that India’s PPI remains experimental, creating questions about the robustness and continuity of input-price measurement.
• Mapping intermediate inputs, especially imported inputs and services to domestic PPIs also remains difficult.
• Consequently, changes in real manufacturing GVA require careful interpretation and comparison with other indicators such as IIP.

Way Forward

• India needs to institutionalise a comprehensive PPI, improve item-level price collection, strengthen ASI and administrative datasets, improve coverage of imported inputs and services, and ensure transparent documentation and periodic validation of deflators.

Source: BS