India’s GDP Measurement Debate

Recent Methodological Reforms

• February 2026 revision updated national accounts methodology
• Addressed issues related to deflators, informal sector estimation, and use of administrative data
• Based on consultations and supported by improved data availability
• Base year revised to 2022–23

Critique of GDP Estimation

• A 2026 working paper claims systematic overestimation of GDP
• Main criticisms:
  • Use of WPI-based deflators instead of production-relevant prices
  • Use of formal-sector corporate data as proxy for informal sector activity
  • These issues have been discussed in academic literature since 2016

Deflator Debate

• WPI-based deflators were used due to lack of comprehensive Producer Price Index data
• WPI is conceptually closer to a Producer Price Index, aligned with international recommendations
• CPI reflects consumer prices, not production-related prices
• Many industrial goods and services are not represented in CPI basket

Informal Sector Estimation Issues

• Use of formal-sector data was a pragmatic response to data limitations
• New data sources such as unincorporated sector surveys and labour force surveys have improved estimates
• Critique relies on partial survey data:
  • Excludes sectors like construction
  • Omits housing services, a major component of informal GVA
  • Leads to underestimation of informal sector output

Methodological Concerns in the Paper

• Uses corporate sales (turnover) instead of value-added as benchmark
• Does not account for differences between sales growth and GVA growth
• Relies on inter-survey comparisons that do not align with official estimation methods
• Circular reasoning: assumes corporate data is correct benchmark while questioning its use

Role of Administrative Data

• MCA database provides comprehensive, actual reported data
• Criticism of MCA data in favour of survey-based estimates is not supported
• Official methodology relies on broader and more robust datasets

Structural Changes in the Economy

• Post-2015 economy has seen:
  • Expansion of digital economy
  • Growth in financial services and insurance
  • Emergence of Global Capability Centres
  • Increased formalisation through policy measures
• These changes are not captured by traditional indicators such as energy use, trade, or bank credit

Limitations of Proxy Indicators

• Direct tax data affected by corporate tax cuts (2019)
• Index of Industrial Production does not reflect structural changes in manufacturing
• Bank credit data does not capture alternative financing sources
• Weak correlation with these indicators does not necessarily imply GDP mismeasurement

Formalisation Evidence

• Economic Survey 2017–18 showed:
  • 87% of firms were informal, but contributed only ~7% of turnover
  • GST-registered firms accounted for ~80% of turnover
  • Indicates rapid and self-reinforcing formalisation of the economy
  • Weakens the claim that informal sector dominates GDP

Assessment of Overestimation Claims

• Paper estimates GDP overestimation of around 22%
• Official February 2026 revision shows much smaller adjustments
• Suggests that the scale of misestimation claimed is not supported by official data