India GDP Revisions: Why Growth Numbers Keep Changing

India GDP Revisions Latest News

• India’s GDP numbers have once again sparked debate. The Ministry of Statistics and Programme Implementation (MoSPI) has revised past growth rates going as far back as 2023-24, with some revised upward and others downward. 
• The short answer for these changes is “using PPI for double deflation”. 
• This article explains, in simple terms, how GDP data is compiled, why it gets revised, and what changed in India’s methodology in 2026.

Why GDP Data Gets Revised Regularly

• Revisions to past GDP numbers, especially quarterly ones, are routine. This is because quarterly and annual estimates are built differently:
  • Quarterly estimates use a “benchmark-indicator approach”. 
    • Movement in quarterly GDP is guided by high-frequency indicators such as crop production, cement production, finished steel consumption and commercial vehicle sales.
  • Annual estimates are based on actual output data. 
    • As more actual data becomes available from company financial results and MoSPI surveys, quarterly estimates are revised.
• This explains the large upward revision in growth for January-March 2026 (Q4 of FY26), from 7.8 per cent to 8.6 per cent. 
• However, changes to older data happened mainly because MoSPI shifted to a new indicator, the Producer Price Index (PPI), to convert nominal GDP into real GDP.

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The 2026 Base Year Revision

• In February 2026, MoSPI released a new GDP series after changing the base year from 2011-12 to 2022-23. 
• Every economy revises its base year periodically to include new data sources, improve methodology and capture the economy more accurately. 
• During this rebasing, MoSPI also overhauled how it removes the effect of inflation from nominal GDP to arrive at real GDP.

How GDP Is Calculated

• GDP is the sum of Gross Value Added (GVA) by each sector, plus indirect taxes collected by the government, minus subsidies. 
• GVA is the difference between the value of what a sector produces (output) and the raw materials it uses (inputs). 
• At current prices, this is called nominal GVA. The difficulty arises in calculating real GVA, which requires removing inflation.

Single Deflation: The Old Method

• Under the old series, the value of inputs and outputs for each sector was deflated by the same number, except for agriculture and mining and quarrying. 
• This deflator was either the Consumer Price Index (CPI), the Wholesale Price Index (WPI) or one of their sub-indices. 
• The real input value was then subtracted from the real output value to get real GVA. This is called single deflation.
• Single deflation works well only when input and output prices move at the same rate. When they diverge, it produces errors.

Double Deflation: The New Method

• In double deflation, inputs are adjusted by input inflation and outputs by output inflation. This gives a more accurate real GVA. 
• MoSPI adopted double deflation in the 2022-23 series after repeated criticism that single deflation was either underestimating or overestimating real growth.

Example Illustrating the Difference

• A sector uses Rs 100 of inputs to produce Rs 200 of output. Nominal GVA is Rs 100.
• Next year, inputs and outputs both rise 20 per cent to Rs 120 and Rs 240. Nominal GVA is Rs 120, a growth of 20 per cent.
• Assume input prices rose 5 per cent and output prices rose 2 per cent.
• Single deflation (using a common 3 per cent deflator): Real GVA is Rs 116.5, growth is 16.5 per cent, deflator is 3 per cent.
• Double deflation (5 per cent for inputs, 2 per cent for outputs): Real GVA is Rs 121, growth is 21 per cent, deflator is -0.8 per cent.

What Double Deflation Implies

• Two key points emerge:
  • When input prices rise faster than output prices, single deflation underestimates real GVA growth.
  • A negative implicit deflator ensures that when nominal growth is low because firms have not fully passed on higher costs to consumers, real growth is not wrongly penalised. 
  • This was the case in April-June 2026, when nominal growth was 10.3 per cent.
• This also explains why the manufacturing deflator has been negative in six of the 13 quarters since April-June 2023. 
• The manufacturing deflator moves inversely with crude oil prices, a crucial input. When oil prices rise, the deflator falls. 
  • Economists note that a negative deflator signals strong pipeline price pressures. 
  • If firms have pricing power, these costs will be passed on later, raising nominal growth while real growth may soften.

The Shift to PPI

• When the new GDP series first came out in February, inflation was removed from the numbers using the CPI (retail prices), the WPI (wholesale prices) and their sub-indices. 
• The latest revisions happened because MoSPI has now switched to the Producer Price Index (PPI). 
  • The PPI captures the price a producer actually receives at the factory gate. 
  • It leaves out taxes and the margins added by traders and transporters. 
  • It is therefore a cleaner measure of what producers earn.

Why does the choice of index matter so much? 

• Because each sector’s inputs and outputs must be adjusted using an index that reflects that sector’s own prices. 
• The old series failed to do this for services. In July-September 2025, the last quarter under the old series, the services sector’s inflation was shown as just 1.2 per cent. 
• This was far too low. The reason was that the WPI was used to adjust services GVA, but the WPI tracks only goods and has no services in it at all. The result was a distortion. 
  • When commodity prices were soft, wholesale inflation was low. 
  • Services GVA was then adjusted by a number much smaller than the real price rise in services. 
  • This made real services growth look higher than it actually was. When commodity prices shot up, the opposite happened, and services growth looked lower than it really was.
• With PPIs, MoSPI now has more than 300 separate deflators to work with, compared to about 180 in the old series. 
• In simple terms, more sectors and sub-sectors are now adjusted using their own correct price index, so GVA is being measured more accurately.

Remaining Limitations

• The new methodology does not mean India’s GDP numbers are perfect. The input PPI is still at a trial stage and exists only for manufacturing. 
• Greater clarity will come when MoSPI publishes its “Sources and Methods” document later this month, detailing the compilation, data sources and methodologies of the new series.

Source: IE