New GDP Series Strengthens Double Deflation Methodology

NEW GDP SERIES STRENGTHENS DOUBLE DEFLATION METHODOLOGY

WHY IN THE NEWS ?

• Methodological Update: The new GDP series, with 2022-23 as base year, uses double deflation in 28 of 30 manufacturing categories to estimate real GVA more accurately.
• Statistical Revision: MoSPI released its comprehensive Sources and Methods document, explaining concepts, data sources and methodologies behind the revised national accounts.
• Sectoral Changes: The new series revises estimates of household-sector GVA, indicating greater informality in some sectors and greater formalisation in construction.
• Growth Measurement: Greater use of separate input and output price adjustments can improve measurement of real economic growth when input and output prices change differently.

DOUBLE DEFLATION AND NEW GDP METHODOLOGY

• Core Method: Double deflation separately adjusts output and input values using their respective price indices before calculating real Gross Value Added (GVA).
• Manufacturing Coverage: The new GDP series applies double deflation to 28 of 30 manufacturing categories, with work continuing for the remaining two categories.
• Previous Method: Earlier, double deflation was mainly used for agriculture and mining, while several other sectors used a common deflator for inputs and outputs.
• Price Accuracy: Separate deflators provide a more realistic estimate when input prices and output prices experience different rates of inflation.
• Remaining Categories: Double deflation has not yet been applied to food-product processing and pharmaceutical manufacturing, partly because imported inputs complicate price mapping.

SECTORAL REVISIONS AND INFORMAL ECONOMY ESTIMATES

• Household GVA: Under the revised methodology, nominal household-sector GVA for 2022-23 was estimated ₹29 lakh crore lower than under the previous series.
• Construction Shift: The household sector’s contribution to construction GVA declined substantially, suggesting greater formalisation than previously estimated.
• Informal Trade: Conversely, trade, hotels and restaurants, and road transport show relatively higher household-sector shares under the revised estimates.
• Data Improvement: The revised estimates incorporate methodological recommendations and additional data sources to improve representation of India’s changing economic structure.
• Transparency Gain: MoSPI’s earlier release of the detailed Sources and Methods document improves transparency by consolidating definitions, data sources, methodologies and compilation practices behind the GDP series.