Why in news?

The Ministry of Statistics and Programme Implementation is set to revise the base year for calculating India’s GDP from 2011-12 to 2022-23, with the updated data series to be released on February 27, 2026.

In addition, the base years for the Index of Industrial Production (IIP) and Consumer Price Index (CPI) will be updated to 2022-23 and 2023-24 respectively, reflecting broader efforts to align key macroeconomic indicators with current economic realities.

What’s in Today’s Article?

• Rationale Behind GDP Base Year Revisions
• Benefits of Regular Revisions in GDP Base Year and Methodology
• Why the GDP Base Year Was Not Revised After 2011-12
• Why the Upcoming GDP Revision Is Crucial for India’s Global Standing

Rationale Behind GDP Base Year Revisions

• The upcoming 2026 GDP base year revision will be the eighth such update in India’s economic history.
• Primary Purpose of Revising the Base Year
  • To ensure more accurate measurement of the economy.
  • Precise GDP data is essential for policy formulation, business decisions, and broader economic analysis.
• Complexity of GDP Estimation
  • GDP tries to capture the entire economic activity in one number, but estimating it is challenging because:
    • It must exclude the value of intermediate goods to avoid double counting.
    • GDP only includes the market value of final goods and services.
    • Even when data is available, calculations are complex; often, all required data isn't fully accurate or updated.
• Evolving Economic Structure
• India’s economy has transformed structurally over the decades:
  • Earlier: Predominantly agrarian economy.
  • Now: Services sector contributes over 55% to GDP; agriculture’s share has declined.
• Estimating output in these sectors requires different data sources and methods, reflecting the economy’s changing nature.
• Improvements in Data and Methodology
  • With better data availability and evolving global best practices, statistical methods must be revised to:
    • Expand sectoral coverage.
    • Use updated datasets.
    • Reflect new economic activities (e.g. digital economy).

Benefits of Regular Revisions in GDP Base Year and Methodology

• Reflects Structural Changes in the Economy
  • Regular updates help capture shifts in economic composition.
  • New and emerging industries can be included, while outdated sectors can be excluded.
  • This ensures GDP calculations stay aligned with present-day realities.
• Provides Accurate Measure of Real Growth
  • Revising the base year helps in better adjustment for inflation.
  • It improves the estimation of real GDP, which reflects actual increase in output, not just price rise.
  • This leads to a clearer picture of true economic performance, aiding policymakers and analysts.

Why the GDP Base Year Was Not Revised After 2011-12

• Initial Plan for 2017-18 Revision
  • In 2017, the government announced plans to revise the GDP base year to 2017-18.
  • The revision was to be based on updated data from the Consumer Expenditure Survey (CES) and Periodic Labour Force Survey (PLFS).
• Data Quality Concerns
  • Both surveys faced setbacks:
    • PLFS (2017-18) revealed 45-year high unemployment, which the government initially questioned.
    • CES (2017-18) showed a decline in consumption, suggesting rising poverty—a reversal of historical trends.
  • While PLFS was later accepted post-2019 elections, CES results were never released due to reliability concerns.
• Policy Disruptions Made 2017-18 an Abnormal Year
  • The year 2017-18 witnessed major economic disruptions:
    • Demonetisation in November 2016.
    • GST rollout in July 2017.
  • These events contributed to a significant slowdown in GDP growth, making 2017-18 unsuitable as a representative base year.
• COVID-19 Further Delayed the Update
  • From 2020 onwards, the COVID-19 pandemic caused severe economic disruptions.
  • As a result, subsequent years could not be considered “normal”, delaying the revision further.

Why the Upcoming GDP Revision Is Crucial for India’s Global Standing

• Past Controversies Have Undermined Credibility
  • The last GDP revision in 2015 faced heavy criticism.
  • Experts, including former Chief Economic Advisor Arvind Subramanian, argued that India was overstating its GDP.
  • Critics pointed to discrepancies between different data sources, especially in the manufacturing sector.
• Missed 2017-18 Revision Added to Inaccuracies
  • The failure to revise the base year in 2017-18 likely led to data inaccuracies.
  • This delay has caused methodological gaps in current GDP estimates.
• Widening Trust Deficit in Macro Data
  • Disputes over the PLFS and CES surveys and the absence of a Census have raised concerns.
  • There are gaps in poverty and inequality data, further eroding trust in India’s macroeconomic statistics.
• High Stakes for Credibility and Investment
  • The new GDP series will be released when India is poised to become the world’s third-largest economy (in nominal GDP).
  • As a result, global investors, institutions, and analysts will scrutinize the data more rigorously than ever.
  • The revision’s accuracy and transparency will affect:
    • Investor confidence, with billions of dollars at stake.
    • Policymaking, as reliable data is vital for effective governance.
    • India’s reputation in the global economic community.