India's new GDP series likely to see overhaul of inflation metrics

India's revised GDP series will introduce major changes in inflation adjustment for consumption, investment and trade, shifting toward granular deflators and global SNA standards to reduce volatility

In an attempt to make national accounts aggregates more conceptually robust, less volatile and better aligned with international standards such as the System of National Accounts (SNA), the statistics ministry is likely to make significant changes in the way India deflates consumption, investment and trade flows in the new GDP series slated to be released next week. 

 

According to the report of the sub-committee for constant price estimates, released by the National Statistics Office (NSO) on Friday, household consumption — measured by Private Final Consumption Expenditure (PFCE) — will likely move away from a broad weighted mix of Consumer Price Index (CPI) and Wholesale Price Index (WPI) to detailed, item-wise Consumer Price Indices “to the extent feasible”. Implicit Price Deflators (IPDs) will only be used where specific consumer price data is unavailable.

 

On investment, the report advocates an asset-wise approach to Gross Fixed Capital Formation (GFCF), replacing the current reliance on a composite WPI for machinery and equipment. For transport equipment, ICT goods and other machinery, specific WPI series will be used. Research and development will be deflated by a weighted CPI (industrial workers and urban). Software and databases will be deflated by urban CPI, mineral exploration by general CPI, and entertainment and other intellectual property products by CPI for recreation and CPI (urban), respectively. 

 

For dwellings, other buildings and structures, the report suggests using growth in the construction sector’s gross value of output at constant prices as the volume indicator, reflecting the absence of a clean price index for this asset. Change in Stocks will continue to rely on industry-wise WPI- or IPD-based deflators, while valuables such as gold and silver will shift to using CPI for jewellery and ornaments, instead of wholesale prices, to better represent consumer-level prices.

 

For external trade, the report recommends more granular deflation of imports and exports of goods and services, with appropriate unit value indices used where direct price or volume indicators are lacking, and an explicit effort to align quarterly estimates with the improved annual methodology. 

 

These expenditure-side recommendations sit alongside equally far-reaching production-side changes. On the production side, the Sub-Committee recommended a broad shift away from single deflation towards volume extrapolation and selective double deflation, depending on data quality and sector characteristics. 

 

Forestry and fishing move to state-wise quantum indices, so that real GVA tracks physical production rather than a generic WPI. Mining abandons WPI-based single deflation in favour of volume extrapolation, using Indian Bureau of Mines (IBM) and IIP-based production indices for coal, petroleum, metallic and non-metallic minerals, with the explicit aim of reducing volatility and aligning annual estimates with quarterly accounts.

 

Manufacturing will see the most ambitious upgrade, with double deflation introduced for a large set of compilation categories, using ASI-based input baskets and item-wise WPIs to deflate output and intermediate consumption separately, while categories with poor input-price coverage stay on a refined single-extrapolation regime.