Why in news?

The Ministry of Statistics and Programme Implementation (MoSPI) has released an 'Approach Paper' outlining its plan to measure the output of India's formal services sector every month through a new Index of Service Production (ISP).

The index will use 2024-25 as the base year and will rely heavily on GST Network data as a key input. Public comments on this proposal have been invited.

A Technical Advisory Committee on ISP (TAC-ISP) was formed in May 2025. It consisted of 24 experts. It has prepared the current approach paper after extensive discussions.

What’s in Today’s Article?

• What is the ISP and Why is it Needed?
• Index of Service Production (ISP)
• Conclusion

What is the ISP and Why is it Needed

• Currently, India publishes two key high-frequency (monthly) economic indicators:
  • Index of Industrial Production (IIP) — measures monthly output of the industrial sector (manufacturing, mining, electricity).
  • Consumer Price Index (CPI) — measures retail inflation and forms the basis of India's headline inflation number.
• Both are closely watched by policymakers, the RBI, and economists to understand the economy's trajectory.
• However, there is no equivalent monthly index for the services sector — a glaring gap given that services contribute more than half of India's GDP and generate millions of jobs.
• What Do Policymakers Use Currently?
  • To understand services sector performance, policymakers and economists currently rely on the S&P Global's HSBC Purchasing Managers' Index (PMI).
  • However, the PMI is a survey-based sentiment index — it captures how businesses feel about activity, not what is actually being produced.
  • It does not measure actual output. The ISP is designed to fill this gap with hard, output-based data.

Index of Service Production (ISP)

• ISP aims to track short-term movements in the services sector. It will be similar in concept to IIP but for services.
• It will be developed by the National Statistical Office (NSO).
• What Will the ISP Cover?
  • The approach paper studies 40+ service sub-sectors, including:
    • Trade (wholesale & retail)
    • Transport
    • Banking and insurance
    • Communication
    • Hotels and restaurants
    • Real estate
    • Professional and technical services
    • Entertainment and recreation
  • Focus is on availability of output data and price deflators.
• Methodology and Global Alignment
  • Based on international best practices.
  • Includes methods for:
    • Data standardisation
    • Use of price deflators (to adjust for inflation)
• What Data Sources Will the ISP Use?
• MoSPI plans to draw from three key data sources:
  • GST Network (GSTN) Data — Provides information on production and outward supplies across different sectors and will serve as the primary data source for monitoring services sector output. However, sectors exempt from GST — such as health and education — cannot be captured through this route.
  • Administrative Data from Ministries and Organisations — Sector-specific data from relevant government bodies will supplement GSTN data for sectors not covered by GST.
  • Annual Survey of Incorporated Services Sector Enterprises (ASISSE) — MoSPI's own enterprise survey, currently being conducted, will provide additional granularity.
• It should be note that all three data sources exclude the informal services sector.
• The excluded segments — due to data unavailability — account for nearly 33% of total GVA of the services sector.
• Specifically, health and education (which will be excluded until ASISSE results are available) alone account for nearly 10% of services sector GVA.
• How Will Output be Adjusted for Prices?
  • To convert nominal output into real output (adjusted for price changes), a Producer Price Index (PPI) would ideally be used — as it measures the prices received by producers.
  • However, since India does not yet have a comprehensive PPI, MoSPI plans to use non-food CPI and sub-sector specific CPI as proxies in the interim.
    • DPIIT is currently working on revising the Wholesale Price Index (WPI) and developing a full Producer Price Index (PPI).
    • A Working Group has recommended methodologies for compiling PPIs for services sub-sectors like Banking, Insurance, Securities, Pensions, Air Transport, Railways, and Telecom.

Conclusion

• The ISP, once operationalised, will be a transformative addition to India's statistical architecture.
• It will give policymakers — including the RBI's Monetary Policy Committee — a far more accurate and timely picture of the services sector, which is the backbone of India's economy.
• It will also reduce India's dependence on private sector survey-based indices like the PMI for understanding services output.
• The initiative reflects MoSPI's broader push toward evidence-based policymaking through better data.