The government on Wednesday sought to address concerns over the methodology and interpretation of the latest gross domestic product (GDP) estimates, particularly the negative implicit deflator for manufacturing, holding that this is because input prices increased faster relative to output prices.
Implicit price deflator (IPD) is a measure of the overall change in prices used to convert between nominal and real GDP.
Under the double-deflation approach, output and intermediate consumption of the manufacturing sector are deflated separately and real gross value added (GVA) is obtained as real output minus real intermediate consumption.
Therefore, when input prices increase faster than output prices, the relative price movement can result in nominal GVA growing more slowly than real GVA, Ministry of Statistics and Programme Implementation (MoSPI) said in a press statement.
“In Q1, 2026-27 manufacturing GVA is compiled using the double-deflation approach, under which output and intermediate consumption are separately deflated. During this period input prices increased faster relative to output prices. As a result, nominal GVA growth for this sector was relatively lower at 7.7 per cent, while real GVA growth was 9.2 per cent. The resulting difference between nominal and real GVA growth produced a negative implicit GVA deflator of 1.5 per cent,” Mospi said in a statement.
Former acting chairman of the National Statistical Commission (NSC) P.C. Mohanan said a negative GVA deflator is likely to happen while using double deflation. “This is one reason why people were not very keen on double deflation earlier. Some of us had also raised the issue of how these indices (deflators) were prepared. The methodology is still not very clear,” he added.
Madan Sabnavis, chief economist at Bank of Baroda said the Mospi clarification is supported by the corporate results. “A lot of companies absorbed the higher input costs and did not pass them on to consumers in the Q1 because demand conditions were uncertain. But at some stage, companies will have to pass on the rise in input prices,” he added.
Mospi secretary Saurabh Garg said at a press conference that the ministry will release the methodology and data sources used in the publication ‘Sources and Methods’ in next two week.
Mohanan said Mospi should have waited before shifting from using WPI to PPI as a deflator. “Sudden changes will always create doubts in the minds of the data users. They should have waited for the PPI series to stabilise and study the behaviour of these indices for a reasonable period before jumping into using that,” he added.
On the issue raised by some experts that last year’s nominal GDP has been revised down from Rs. 86 trillion to Rs. 80 trillion, to make current year’s GDP look better, Mospi said successive revisions to the GDP series arose from the change in base year, incorporation of improved data sources and methodologies, and updation of available indicators.
“It is therefore incorrect to interpret the difference as a deliberate downward revision of last year’s GDP to mechanically increase the current year’s growth rate,” it said.
It also clarified that since the Quarterly GDP estimates are compiled using the benchmark-indicator approach, under which the movement in the quarterly estimates is guided by the movement in relevant high-frequency indicators, a revision in the previous-year benchmark does not, by itself, create an artificial increase in the current year’s underlying economic activity or the indicators used for estimation.
Questions have also been raised on 2.5 per cent implied GDP deflator when consumer inflation (CPI) was 3.9 per cent and wholesale inflation (WPI) was over 9 per cent.
The Mospi clarified that the implicit GDP deflator need not move in line with either CPI or WPI due to differences in coverage, weights, price concepts.
“It needs to be noted that the deflation of individual item/group of items is done using the relevant price indices for that item/item-group. The implicit GDP deflator is only a derived number reflecting the price impact of more than 300 individual price deflators used at the item/item-group level,” it added.
On high level of discrepancies in both current and constant price GDP estimates during Q1 of FY27, Mospi said while the current discrepancy may change in subsequent revision rounds, it cannot be concluded in advance that GDP will necessarily be revised upward, or by a specific magnitude.
“The discrepancy is a statistical balancing item arising from the difference between the GDP estimates compiled through the production and expenditure approaches. Its movement should therefore not be interpreted, by itself, as evidence that the reported GDP is understated or overstated,” it added.
India’s GDP methodology has come under cloud at several times. In the last instance, finance minister Nirmala Sitharaman clarified in Parliament last December that IMF’s ‘C’ rating for India’s national accounts’ data adequacy was on account of the use of the 2011-12 base year rather than any broader data shortcoming. India introduced the 2022-23 base year this year.
