New GDP series of 2022-23: Improvements in some areas, old problems linger in others

The new GDP with base-year of 2022-23, released on Friday (February 27) brings down average growth in “real” GDP during FY24-FY26 to 7.3 per cent, from 7.7 per cent under the previous base-year of 2011-12.

“Real” GDP growth is inflation-adjusted increase in production of goods and services. Base-year revisions are made periodically to capture the structural changes in the economy over time – from consumption patterns to compositions within sectors (agriculture, industry, and services) due to the changing nature of economic activities.

Also Read: India’s Q3 GDP grows at 7.8 pc under new base year series

Except for FY24, when “real” growth went down to 7.2 per cent under the new base-year (new GDP series of 2022-23) from 9.2 per cent in the old series (old GDP series of 2011-12), the reverse happened in the other two fiscals – up from 6.5 per cent to 7.1 per cent in FY25 and from 7.4 per cent (First Advance Estimate) to 7.6 per cent (Second Advance Estimate) in FY26.

This means, “real” growth is estimated to grow at 7.6 per cent – as against 7.4 per cent estimated under the old GDP series in January 2026.

The following graph maps these changes in “real” growth in GDP in the two series.

The base-year revisions are made by selecting a fiscal year considered normal – unlike say the pandemic fiscal of FY21 which witnessed extreme disruptions in economic activities or fiscals which witness severe drought or flood. India’s National Statistical Commission (NSC) recommends such revisions every five years. This change has, however, come after more than a decade.

The base-year revision has also altered quarterly GDP growth rates.

In the old series, “real” growth in Q1 and Q2 of FY26 were 7.8 cent and 8.2 per cent, respectively. The new series alters these numbers to 6.7 per cent and 8.4 per cent. For Q3 of FY26, “real” growth is estimated at 7.8 per cent – falling from 8.4 per cent in Q2 (old series).

Also Read: Indian economy to grow 7.4 per cent in FY26 as inflation eases, says CEA

These changes have come because of changes in both methodologies and use of new data, which were not available earlier.

Before looking at these aspects, here is how the new GDP series alters the compositions in output and expenditure sides of measuring the economy. These two measures are complementary to each other; while the output method measures gross value added or GVA (gross output minus intermediate inputs used) by all three sectors – agriculture, industry, and services – the expenditure method measures total spending on goods and services (consumption, government expenditure, investment, and net exports).

Changes in sectoral composition of GVA

The most noticeable change is a rise in agriculture’s contribution (agriculture value added as percentage of total value added or GVA) from average of 17.9 per cent during FY23-FY25 in the old series to 19.6 per cent in the new.

The share of industry also rises – from average of 22.9 per cent during the same period under the old series to 23.6 per cent in the new – while that of services goes down from 50.4 per cent to 48.2 per cent, respectively. The share of manufacturing (part of industry) also goes up from 14.2 per cent to 14.6 per cent.

The following graph maps these changes during FY23-FY25 under the old and new series.

Changes in composition of expenditures

Similarly, the base-year revision has altered the shares of expenditures relative to the GDP, which are mapped in the following graph. GDP is calculated by adding taxes but subtracting subsidies from GVA.

As the graph shows, the average share of consumption (private final consumption expenditure or PFCE) goes down from 61 per cent to 57 per cent. It remains the main engine of growth. Government expenditure (government final consumption expenditure or GFCE), a relatively minor growth engine, rises from 10 per cent to 11 per cent; investment (gross fixed capital formation or GFCF) up from 31 per cent to 32 per cent; exports up from 22 per cent to 23 per cent and imports static at 25 per cent.

Also Read: India will grow at 7.5–7.8 pc this fiscal, 6.6–6.9 pc in FY27: Deloitte

The most significant change is elimination of discrepancies – the gap between the output and expenditure measures of the economy – from -2 per cent to zero. Large discrepancies (output estimate minus expenditure estimate), say over 1-1.5 per cent of GDP, points to significant estimation errors. The output measure is considered more reliable.

The changes are outcomes of changes in methodology and use of new data not available earlier.

Changes in methodology and new data

Some of the key changes in rebasing the GDP include the following.

• Use of double deflation in agriculture and manufacturing, instead of single deflation earlier. Double deflation means calculating “real” GVA by adjusting (deflation) output and intermediate inputs using specific price indices – which is considered, globally, a better method of measuring growth. This will be done using item-level relevant WPI (wholesale price index) and CPI (consumer price index). CPI underwent a revision recently, when it was rebased from 2012 to 2024 but WPI continues to be of vintage 2011-12 base-year.
• In case of multi-activity private corporations (say, a manufacturing enterprise also providing services), total value added is being segregated with the availability of value added in different activities – instead of using total value added being allocated for the major activity.
• Informal sector is being better estimated using new sets of data like Annual Survey of Unincorporated Sector Enterprise (ASUSE) and Periodic Labour Force Surveys (PLFSs).
• Other new data including GST, Public Finance Management System (PFMS), e-Vahan, etc. for various estimations and to update various rates/ratios used in such estimations.
• For agriculture, prices provided by states have been used, instead of using WPI adjusted price in provisional estimates.
• Consumption demand (PFCE) is being estimated using a mixed approach (a) enhanced use of Household Consumer Expenditure Survey (HCES) (b) direct estimation based on production and other data sources (c) commodity flow approach. Besides, a new Classification of Individual Consumption According to Purpose (COICOP, 2018), developed with the help of the United Nations Statistics Division (UNSD). It provides a framework of homogeneous categories of goods and services from the point of view of its usage by the households and is in line with global standards.

Some concerns linger on

In November 2024, a Staff Report of the International Monetary Fund (IMF) had raised several red flags in the Indian statistical system. It put the National Accounts Statistics, which provides GDP estimate, among other things – in grade “C” for outdated indices and inadequate coverage.

Some of the concerns have been addressed, like rebasing the GDP and CPI but WPI and industrial production (IIP) continue to be of the 2011-12 vintage. The revisions are expected in WPI and IIP. The IMF’s concerns over the use of single deflator have been addressed to some extent with the use of double deflation in agriculture and manufacturing.

Other than these, concerns over the use of outdated Census 2011 data for GDP estimates.

Also Read: GDP growth projected at 7.4 per cent in FY26 on services, manufacturing boost

Census data provide the most credible and comprehensive information about demographic and socio-economic conditions – business activities, production, employment, etc. which are key to recalibrating various economic indicators like CPI and IIP. In the absence of Census 2021, the population data being used are projections from the Census 2011. In the meanwhile, a study published in the medical journal Lancet in 2024 said, India’s total fertility rate fell to 1.9 per cent (below the replacement level of 2.1 per cent) and is expected to fall further to 1.29 per cent by 2050. In such a situation, population projections based on such old data are unlikely to provide an accurate picture.

The new GDP series also uses the Ministry of Corporate Affairs (MCA) data. This data (MCA-21 database) was used for the first time in India in rebasing the GDP to 2011-12 (from 2004-05) for estimating the industry and services sectors. It had sparked a debate not only because the MCA data were unaudited and unverified, in 2019, the National Sample Survey Office (NSSO) found “about 45 per cent of MCA units” listed in the services sector “out-of-survey/casualty”. That is, those many units didn’t exist, stopped operating, or were engaged in unrelated activities (non-services activities). The NSSO didn’t verify the manufacturing units.

There is no clarity if such anomalies in the MCA database have been addressed.