By Shivanand Pandit
The Ministry of Statistics and Programme Implementation has released a revised series of Gross Domestic Product (GDP) estimates with the base year updated from 2011–2012 to 2022–2023. Along with this revision, the ministry has published annual as well as quarterly GDP figures for the period from 2022–2023 to 2025–2026 under the new framework. The main objective of revising the base year is to ensure that GDP calculations reflect the current structure and realities of the economy rather than conditions that existed more than a decade ago.
GDP measures the total value of goods and services produced within a country during a specific period. It is widely regarded as one of the most important indicators for evaluating the performance of an economy. Policymakers, investors and analysts rely on GDP data while making decisions related to interest rates, government spending and sectoral policy priorities. Over the last ten years, the Indian economy has witnessed major structural changes. These include the introduction of the Goods and Services Tax, changes in consumption patterns among households and the availability of more frequent and detailed economic surveys. When the base year becomes outdated, it may lead to inaccurate measurement of real economic growth, which makes periodic revisions essential. Although the government intends to revise the base year roughly every five years, selecting an appropriate year is important. The year 2017–2018 was not chosen because it coincided with the rollout of GST, which significantly altered the country’s tax and reporting systems. Similarly, the years 2019–2020 and 2020–2021 were heavily affected by disruptions caused by the COVID-19 pandemic. The year 2021–2022 saw an unusually strong economic rebound following the pandemic. Therefore, 2022–2023 was considered a more suitable and stable year to serve as the new base.
The revised GDP series makes use of several new sources of data in order to better capture economic activity. For example, GST data is now used to estimate regional output generated by private companies. Information from the e-Vahan database is used to measure expenditure related to the transport sector, while the Public Finance Management System helps improve the assessment of government spending. In addition, data from the Annual Survey of Unincorporated Sector Enterprises and the Periodic Labour Force Survey have been incorporated to better reflect the economic contribution of households and small businesses. Another key improvement in the revised framework is the use of supply and use tables. These tables ensure consistency between the production and expenditure approaches to measuring GDP. By matching the value of goods and services produced with how they are consumed, invested or exported, these tables help minimise discrepancies between different estimates of GDP. The new methodology also improves the classification of corporate activities. Instead of assigning output based on a company’s main line of business, the revised system uses activity-wise turnover data, which allows value addition to be distributed more accurately across various sectors.
Several methodological changes have also been introduced in the way prices are adjusted while calculating real GDP. The earlier single deflation approach has been replaced with double deflation in sectors such as manufacturing and agriculture. Price adjustments will also rely on more detailed deflators based on over 260 categories within the Consumer Price Index. Quarterly GDP estimates will now be prepared using the proportional Denton method instead of the earlier pro rata benchmarking method, which helps reduce artificial volatility in the data. The revised framework also makes wider use of GST data and introduces the Financial Intermediation Services Indirectly Measured (FISIM) method for estimating the value of financial services. This internationally accepted approach provides a more accurate assessment of financial sector output. In addition, the process of deflation will use sector-specific and item-specific price indices rather than broad aggregate indices. The ministry is expected to release the back series data based on the revised methodology by December. A detailed document explaining the data sources and methods used in compiling the new GDP series will also be published in the coming months. At present, India prepares its GDP estimates according to the System of National Accounts 2008, the globally recognised statistical framework for national accounts. The United Nations Statistical Division is currently working on the transition to the updated SNA 2025 framework, which countries are expected to adopt around 2029–30. India is likely to align with this revised international standard during its next base year revision cycle.
The revised national income series suggests that the Indian economy is likely to expand by 7.6% in the current financial year, slightly higher than the earlier estimate of 7.4%. While this appears impressive at first glance, the figure must be interpreted alongside the substantial downward revision in the growth rate for FY24, which has been reduced from 9.2% to 7.2%. Because of this adjustment, the base for calculating growth has effectively been lowered. As a result, FY25 growth has been revised upward to 7.1% from the earlier estimate of 6.5%, and the FY26 projection of 7.6% also partly reflects this statistical base effect.
Nevertheless, achieving three consecutive years of growth above 7% in both GDP and gross value added (GVA) remains a notable achievement, especially in the context of a difficult global economic environment. External demand has remained uncertain, with exports facing pressure amid global slowdown concerns. In particular, lingering uncertainty around the proposed India–US trade agreement has added to the challenges affecting export momentum.
An important feature of the new GDP series is the improvement in methodology and coverage. The revised framework incorporates emerging segments of the economy and introduces the double-deflator method for measuring manufacturing output, which adjusts both input and output prices separately. This approach improves the accuracy and credibility of growth estimates. As economies evolve—with new industries, technological shifts, and changing price structures—measurement systems must be updated accordingly. Otherwise, outdated frameworks risk misrepresenting the true structure and performance of the economy. The introduction of the revised GDP series is therefore intended to ensure that national income statistics remain aligned with the realities of a rapidly transforming economy.
Impact of the Base Effect
From the demand perspective, investment activity shows signs of strengthening. Gross fixed capital formation (GFCF) is expected to increase by about 7.1% during the year, reflecting a gradual improvement in capital expenditure. Manufacturing activity appears particularly strong. According to the second advance estimates, the sector is expected to register growth of around 11.5%, indicating improved industrial momentum. The services sector continues to display resilience. The trade, hotels and transport segment, which is labour-intensive and closely linked to consumption and mobility, is projected to expand by roughly 10%, suggesting a healthy recovery in service demand.
Private consumption also appears to have picked up. Private Final Consumption Expenditure (PFCE) is estimated to grow by 7.7%, a figure that initially appears robust. However, it should be noted that this expansion comes after two years in which consumption growth remained subdued at 5.8% annually. The relatively weak performance of consumption during that period had prompted the government to introduce a fiscal stimulus through reductions in income tax and goods and services tax (GST) rates. Recent data indicate that these policy measures may be starting to yield results. PFCE recorded an 8.7% year-on-year increase in the December 2025 quarter, suggesting that consumer spending may be gradually regaining momentum.
Consumption at a Critical Juncture
Despite this recent improvement, the sustainability of consumption growth remains uncertain. Rural demand, which plays a critical role in the Indian consumption story, has shown signs of moderation. Rural spending growth slowed to 5.3% year-on-year in the third quarter of FY26, compared with 7.9% in the preceding quarter.
Agricultural performance has also been relatively weak. The farm sector is projected to grow by only 2.4% during the year, and growth in the third quarter slowed further to 1.4%, marking the weakest expansion in eight quarters. Although real wages have seen some improvement, government spending on rural welfare programmes has remained relatively restrained. This combination may limit the strength of rural consumption in the near term.
Another potential risk to consumption arises from the employment outlook in the information technology sector, where automation and global demand uncertainties could lead to job losses over the next few years. Any slowdown in hiring or layoffs in this high-income sector could dampen overall consumption growth.
Construction Slowdown and Employment Concerns
Equally noteworthy is the slowdown in construction activity over the past two years. The construction sector is a major source of employment, particularly for semi-skilled and migrant workers. Its moderation reflects the cooling of the real estate market, especially in the mid-range and affordable housing segments.
Household investment in residential property to remain subdued in the near term. This could have broader economic implications because housing activity generates demand for a wide range of industries, including cement, steel, and other building materials. A slowdown in residential investment therefore has the potential to weaken both employment generation and related industrial demand.
Fiscal Implications and the Road Ahead
The revisions in the national income data have also slightly reduced the estimated size of the Indian economy, which is now projected at around ₹345 lakh crore in FY26. This recalibration will marginally increase key fiscal indicators such as the fiscal deficit-to-GDP ratio and the public debt ratio, though both remain within manageable levels. Looking ahead, the government has set a real GDP growth target of 7.2–7.4% and nominal growth of around 11% for FY27. These projections appear achievable, particularly if the anticipated India–US trade agreement is concluded soon and helps boost export activity.
However, sustaining growth in the 7% range may not be sufficient to trigger a strong private investment cycle. For businesses to significantly expand capacity and undertake large capital expenditure projects, the economy may need to grow closer to 8% on a sustained basis. Higher growth would also help improve capacity utilisation across industries and generate stronger employment gains.
In summary, while the current growth trajectory reflects stability and resilience, the economy may need to shift into a higher growth gear to unlock a more powerful investment cycle and ensure durable job creation. The foundation for growth remains solid, but the next phase will require stronger momentum in consumption, investment, and external demand.
