By Shivanand Pandit
India’s economy has undergone significant changes over the last two decades. Earlier, industries were considered the main engine of economic growth. Today, however, the services sector has become the largest contributor to the country’s economy. It generates more than half of India’s Gross Value Added (GVA), creates a substantial number of jobs, attracts significant investment, and contributes substantially to exports. Despite this, India lacked a regular monthly indicator to measure the performance of the services sector. While industrial production has long been tracked through the Index of Industrial Production (IIP), there was no similar indicator for services. To fill this important gap, the Ministry of Statistics and Programme Implementation (MoSPI) has introduced the Index of Services Production (ISP) on a trial basis, with 2024-2025 as the base year.
The Index of Services Production is a short-term economic indicator that measures changes in the real volume of output produced by service industries over time. Its purpose is to provide a monthly estimate of how the services sector is performing compared to the base year. Unlike simple value-based measurements, the ISP aims to measure actual production after removing the effect of inflation. This allows policymakers, businesses, and researchers to understand whether growth in the services sector is due to higher production or simply because of rising prices.
The ISP follows the fixed-weight Laspeyres volume index method, which is also used for the Index of Industrial Production. Under this approach, each service sector is assigned a weight based on its contribution to GVA during the base year. Sectors that contribute more to the economy receive higher weights in the index. This ensures that the overall index reflects the actual importance of different service industries in India’s economy.
The calculation of the ISP uses different types of data depending on the nature of each service. For sectors such as railways and air transport, where physical activity can be measured, quantity-based indicators are used. For many other services, such as banking, insurance, information technology, and trade, value-based data is collected. Since value data includes the impact of inflation, it is converted into real output by using suitable price indices called deflators. This process helps estimate the actual growth in production rather than changes caused by rising prices.
The Missing Metric: Why India Needs an ISP?
One of the biggest reasons for introducing the ISP is that India’s economy has become predominantly service-oriented. The services sector has consistently contributed more than 50% of India’s GVA for several years. Under the latest national accounts series, the services sector accounted for slightly over 52% of real GVA between 2022-2023 and 2025-2026. However, until now, there was no monthly indicator to track this dominant sector. This made it difficult for economists and policymakers to assess the economy’s short-term performance accurately. The introduction of the ISP brings balance to India’s economic monitoring system by complementing the Index of Industrial Production. Together, the two indices provide a more complete picture of the country’s economic activity.
The availability of the ISP is expected to improve GDP forecasting considerably. Since services account for a major share of economic output, timely information on their performance will help estimate quarterly and annual GDP more accurately. The index also supports nowcasting, which means estimating the current state of the economy before official GDP figures are released. This enables policymakers, financial institutions, businesses, and investors to respond more quickly to changing economic conditions.
The development of the ISP has become possible because India’s statistical data system has improved significantly in recent years. One of the most important sources of information is the Goods and Services Tax (GST) system. Since most services are produced and consumed immediately, GST records provide reliable information about business turnover in many formal service industries. Administrative records from sectors such as railways, civil aviation, banking, insurance, and telecommunications also provide valuable data. In addition, the newly introduced Annual Survey of Incorporated Services Sector Enterprises (ASISSE), launched in April 2026, will supply more detailed information and improve the quality of the index over time.
The ISP currently covers 19 major service industries. These include wholesale and retail trade, repair and maintenance services, road and water transport, warehousing, transport support services, accommodation and food services, postal and courier services, telecommunications, information and broadcasting, banking, insurance, real estate, information technology, computer-related services, professional and technical services, administrative and support services, and arts, entertainment, and recreation. These sectors together represent around 60 percent of India’s services economy and cover most organised service activities.
Some important sectors have not yet been included in the index. Health and education services will be added later after sufficient data becomes available through ASISSE. Public administration, defence, ownership of dwellings, certain financial services, membership organisations, personal services, and several non-market activities are also outside the current scope. Since the ISP mainly depends on GST and administrative records, it does not adequately capture informal service activities, which continue to contribute significantly to India’s economy.
The ISP is often compared with the Purchasing Managers’ Index (PMI) Services, but both indicators serve different purposes. The PMI is based on surveys of business managers who report whether business conditions have improved, worsened, or remained unchanged compared to the previous month. A PMI reading above 50 indicates expansion, while a reading below 50 indicates contraction. It reflects business confidence and expectations. The ISP, on the other hand, measures the actual volume of services produced using administrative and statistical data. Therefore, PMI indicates business sentiment, whereas ISP provides a direct measure of economic output.
The Reserve Bank of India (RBI) and other policymakers are expected to benefit greatly from the introduction of the ISP. Since it provides monthly information on the services sector, it will help monitor economic activity, assess business cycles, understand demand conditions, evaluate the impact of government policies, and improve macroeconomic surveillance. The index will also strengthen the national accounts by providing more timely and detailed information for estimating economic growth.
On 14 July 2026, the Ministry of Statistics and Programme Implementation released the first trial results of the ISP for April 2026. Although an overall composite index value was not published, the results showed broad-based strength across the services sector. Fourteen out of nineteen sectors recorded double-digit annual growth. Accommodation and food services recorded the highest growth, followed by retail trade, administrative and support services, and real estate. High-weight sectors such as information technology, banking, and retail trade also performed strongly, indicating that India’s services sector remained resilient despite global economic uncertainties. Air transport was one of the few sectors that recorded a decline during the same period.
The introduction of the ISP has been made possible by several improvements in India’s statistical infrastructure. The expansion of the GST network, better administrative databases, digitisation of government records, and the launch of ASISSE have together created reliable sources of high-frequency data. Earlier attempts to create a services production index failed mainly because monthly information was either unavailable or incomplete. The present system represents a significant improvement in data collection and economic measurement.
Converting value-based data into real production remains one of the important technical challenges in constructing the ISP. Since GST records capture the value of transactions rather than the quantity of services produced, suitable price indices are required to remove the impact of inflation. At present, wholesale trade is adjusted using the Wholesale Price Index (WPI), while other service sectors are adjusted using the Consumer Price Index (CPI), Services CPI, or other available sector-specific indices. Internationally, Producer Price Indices (PPIs) are considered the best method for estimating real output. India has recently begun developing Services Producer Price Indices for several sectors, and their gradual expansion is expected to improve the accuracy of the ISP in the future.
Many developed countries, including the United Kingdom, South Korea, and members of the European Union, already use monthly services production indices as an important tool for monitoring economic activity. India’s ISP follows a similar approach but is still in the experimental stage. It should therefore be viewed as a developing statistical indicator rather than a final measure of the services economy.
A step forward, despite the winding road
Despite being a major achievement, the ISP has certain limitations. The biggest limitation is its restricted coverage of the informal sector, which contributes nearly one-third of India’s services Gross Value Added. Since informal businesses often operate outside the GST system, they are not fully represented in the index. Important sectors such as health, education, public administration, defence, social work, and personal services are also not included at present. Furthermore, some sectors still rely on broad price indices because detailed producer price indices are not yet available, which may reduce the precision of the estimates.
Another limitation is that the trial index currently covers only about 60 percent of service activities and excludes a significant number of enterprises. Some sectors also carry much higher weights than others, meaning that their performance can strongly influence the overall results. As more sectors are included and better-quality data becomes available, the index is expected to become more representative of the entire services economy.
In the coming years, the government plans to expand the coverage of the ISP, improve seasonal adjustment techniques, strengthen data quality, include additional service industries, and adopt more accurate producer price indices. Continuous improvements in methodology and wider use of administrative data will help transform the experimental series into a reliable and internationally comparable economic indicator.
Overall, the Index of Services Production represents an important reform in India’s statistical system. It fills a long-standing gap by providing a regular measure of service-sector performance, complements the Index of Industrial Production, and strengthens the country’s ability to monitor economic activity. As the index evolves and its coverage expands, it will become an increasingly valuable tool for policymakers, researchers, businesses, investors, and financial institutions in understanding India’s service-led economic growth and making informed policy and investment decisions.
(The writer is a tax specialist, financial adviser, author, guest faculty and public speaker based in Goa. He can be reached at
[email protected] or 9822983420)
