Explained: How new GDP series will alter growth estimation methodology

India will shift GDP base year to FY23 and adopt price deflators and double deflation to improve accuracy, reflect structural shifts, and align national accounts with global standards

India’s gross domestic product (GDP) series is set for an overhaul, with 2022-23 as the new base year from which it will be calculated, replacing the current 2011-12 benchmark, as part of a broader overhaul of national accounts methodology. The revised series will be released today (February 27).

 

The base year functions as the standard reference point, which enables economists to measure real economic growth by eliminating inflationary effects to determine actual output changes. When the base year becomes outdated, it no longer reflects current consumption patterns, industrial structure, or technology adoption. Thus, updating the base year allows GDP estimates to track economic structural changes, which include the increasing importance of digital services and the evolution of consumer spending patterns.

 

 

India has historically revised its GDP base year periodically to align with evolving economic conditions and international statistical standards under the System of National Accounts.

 

What is the biggest methodological shift in the new GDP series? 

The most significant shift is in how India adjusts GDP for inflation, known as deflation. Instead of relying on broad price indices, the new series will use a much wider and more granular set of deflators, according to the Ministry of Statistics and Programme Implementation (MoSPI).

 

The statistics ministry will now reportedly use nearly 500-600 price indicators drawn from detailed Consumer Price Index (CPI) and Wholesale Price Index (WPI) components, compared with about 180 earlier. This expansion is intended to improve accuracy in measuring real output.

 

The revised methodology will also replace composite deflators with sector-specific price indicators and unit value indices where available. This allows consumption, investment, and trade flows to be adjusted using price movements relevant to each category rather than economy-wide averages.

 

Economists and international agencies have expressed their concerns about using outdated deflators and relying too much on wholesale price trends instead of retail inflation.

 

What is double deflation methodology? 

The new series introduces double deflation in manufacturing and selected sectors, one of the most technically significant changes in India’s GDP methodology.

 

Under the earlier approach, GDP estimates often relied on single deflation, where output was adjusted using a single price index. The double deflation method will correct this by separately adjusting output and input prices. This will improve the measurement of real value added and prevent inflation-driven profit changes from being misinterpreted as output growth.

 

Officials have said the shift will improve measurement accuracy, especially in manufacturing, where input costs such as metals, fuel, and imported components fluctuate independently of output prices.

 

The National Statistics Office’s expert committee also recommended greater use of volume extrapolation and sector-specific indicators to reduce volatility and improve conceptual consistency in GDP estimates.

 

Why are economists debating the role of WPI in the new GDP series? 

However, the revision comes even as the Wholesale Price Index continues to use 2011-12 as its base year, while GDP moves to 2022-23 and CPI to 2024.

 

This staggered update has raised concerns about consistency in national accounts, as reported by Business Standard. Some economists have described WPI as the “weakest link”, arguing that outdated weights and divergence between wholesale and retail price trends could affect deflation accuracy.

 

However, others say the impact may be limited because WPI is applied at detailed, industry-specific levels rather than as a single economy-wide deflator. The revised methodology’s greater reliance on granular price data is also expected to mitigate distortions.

 

Will the new GDP series change India’s growth numbers? 

Economists believe that the revised series is unlikely to fundamentally alter headline growth trends, but it may change sector-level estimates and improve reliability.

 

The statistics ministry says that the new framework will incorporate updated data sources, improved deflators, and better measurement techniques. These changes aim to ensure GDP reflects actual production and consumption patterns more accurately.