FAQs on the

new GDP series

September 2016

What is GDP?
Gross domestic product, or GDP, is the most important indicator of a countrys overall economic activity. It
measures the monetary value of all final goods and services produced within an economy in a given period of time.
Final goods refer to goods and services produced for sale in the market. For example, unpaid work (for example,
performed at home or by volunteers) and black market activities are not included in GDP calculation because they
are difficult to measure and value accurately.
It is important to understand that GDP is not sum the output, but the sum of the value added at each stage of
production. Here, the value added is defined as total sales minus value of intermediate inputs in the production
process. For example, flour is an intermediate input and bread the final product. Or, an architects services will be
an intermediate input and a building the final product.

Nominal versus real GDP

GDP is an estimate of the size of the economy. GDP growth indicates how the economy is performing over time.
Since GDP measures the monetary value of final goods and services, it is a nominal variable. The nominal GDP
can grow due to increase in prices even when output remains the same. Therefore, to measure the true progress of
an economy, one must look at real GDP growth, which is derived by taking out the price effect from nominal GDP
growth. Nominal GDP is converted into real GDP using a deflator, which is a combination of the Wholesale Price
Index (WPI) and Consumer Price Index (CPI).

How is the new GDP series different from the previous one?
The new series (released by Central Statistical Office in January 2015) entailed a base-year revision, and changes
in database, coverage and methodology. The objective of the exercise was to align Indias GDP estimation with
international best practices.

New base year: Base year is the reference year used to construct an index. GDP estimated at prices prevailing in
the current year is termed as GDP at current prices, and the one prepared using base-year prices is termed as
GDP at constant prices. The latter, therefore, doesnt take into account the changes in prices in the years after the
base year. Using constant prices, thus, is the yardstick to measure real growth.
In the new series, the CSO changed the base year from 2004-05 to 2011-12 such revisions are done periodically.
Since GDP is calculated by referencing the economy to a base year which becomes less suitable as the
economy evolves countries periodically rebase their number crunching to better capture the changed economic
structure and incorporate methodological improvements.
Comprehensive database: In the old series, estimation of the corporate sector was done on the basis of financial
results of around 2,500 companies from the Reserve Bank of Indias database. In contrast, the new series uses
financial results of around 5 lakh companies filed with the Ministry of Corporate Affairs (MCA) under its egovernance initiative, MCA21. This has ensured a comprehensive representation of the corporate sector, especially
in mining, manufacturing, and services. The new series also incorporates latest data from surveys and censuses.
Expanded coverage: For the new GDP calculation, the CSO has expanded coverage within sectors. The
coverage of private financial corporations now includes stock brokers, stock exchanges, asset management
companies, mutual funds and pension funds. It also encompasses regulatory bodies, the Securities and Exchange
Board of India, the Pension Fund Regulatory and Development Authority, and the Insurance Regulatory and
Development Authority. The share of financial, real estate and professional services has increased 2.3 percentage
points to 18.8%, and there is also greater coverage of local bodies and autonomous institutions.
Establishment to enterprise approach: In the old series, India followed the establishment approach to estimate
GDP of the manufacturing sector by using the Annual Survey of Industries data. Under this approach, value
addition was captured only at the factory/plant. This did not take into account other activities such as trading,
marketing, after-sales, or other services of the head office. The new series takes an enterprise approach,
incorporating all these activities, as reflected in the corporate accounts submitted to the MCA. Therefore, the share
of manufacturing has increased to by 3.4 percentage points to 18.1%.
Alignment with international guidelines: To the extent feasible, the new series puts India in line with global
practice in compilation of national accounts the System of National Accounts, 2008. GDP data is now calculated
at basic prices as opposed to factor cost earlier. GDP at basic prices are derived by adding net production taxes to
GDP at factor cost.
It is also important to note that the term gross value added, or GVA, means the same thing as GDP, since GDP is
already the summation of all value additions.
Change in sectoral composition:
Because of the changes described above, different sectoral shares in the new series have been revised as
following:

Table 1: Change in the sectoral shares in GDP in fiscal 2012 (%)

Sectors

2004-05 series

2011-12 series

Difference

Agriculture, forestry and fishing

17.9

18.4

0.5

Mining and quarrying

2.7

3.2

0.6

Manufacturing

14.7

18.1

3.4

Elect, gas, water, and other utility services

1.6

2.4

0.8

Construction

8.2

9.4

1.2

Trade, hotels, transport, communication

24.7

17.2

-7.5

Financial, real estate, and professional services

16.5

18.8

2.3

Public administration, defence, and other services

13.8

12.5

-1.3

Source: CSO

On aggregate basis, therefore, shares of agriculture and industry in GDP has increased, while that of services
sector has declined in the new series.
(For details on reasons for change in sectoral composition, see Annexure: Reasons for change in sectoral
composition of GDP)

What concerns have been raised about the new GDP series?
The new GDP series has been greeted with much scepticism. Thats because the new numbers show high and
accelerating real growth even as nominal growth has been trending down. At the same time, the new GDP series
seems disconnected with ground-level indicators, particularly corporate earnings and industrial production as
measured by the Index of Industrial Production (IIP).
Real GDP growth at market prices (%)
10.3

New (2011-12 base)

10.8

15.7

15.1

Old

FY15

FY14

12.2 12.3

FY13

12.9

13.9 13.3

FY12

FY16

FY14

FY15

5.0

FY13

FY12

FY11

FY10

FY09

FY08

FY07

FY06

Old (2004-05 base)

4.7

16.3 16.1

FY11

13.9

6.6
3.9

20.2

8.7

FY16

7.6

FY10

7.2

FY09

5.6

6.6

FY08

8.5

FY07

9.3

FY06

9.8
9.3

Nominal GDP growth at market prices (%)

New

Source: CSO

(For details on the observed changes between the old and new GDP series, see Annexure: How different is the
new GDP series).

What explains these anomalies?

Why real and nominal growth rates are so divergent: the role of the deflator
As mentioned earlier, the GDP deflator is used to derive real GDP from nominal GDP. Specifically:
=

100

Hence, the decline in GDP deflator can lead to increase in real GDP. This is the case in the new series, in which
the GDP deflator has declined substantially, reaching a decade-low annual growth rate of 1.07% in fiscal 2016.
Thus, even though nominal GDP growth is declining, real GDP growth is increasing on account of decline in growth
rate of the deflator.
How the GDP deflator has moved
10.0
9.0
8.0

% y-o-y

7.0

6.0
5.0
4.0
3.0
2.0

1.0
0.0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Fiscal year
Old

New

Source: CSO

Why has the GDP deflator declined substantially?

As mentioned earlier, the GDP deflator is a combination of WPI and CPI. However, the GDP deflator follows WPI
more closely than CPI because WPI has a greater share than CPI. This relationship has strengthened in the new
series, as WPIs share in deflator has increased by 6 percentage points from the old series. That happened
because of the increased share of manufacturing1 in the new series. The shares of WPI and CPI now stand at
41.1% and 30%, respectively.
The WPI has seen a sharp decline in recent years, reaching negative territory in fiscal 2016, which explains the fall
in GDP deflator in the new series.

Manufacturing GDP is deflated using WPI

Deflator aligned more with WPI than CPI

12.0
10.0
8.0

6.0
4.0
2.0
0.0
2013

2014

2015

2016

-2.0
-4.0
New GDP deflator

WPI

CPI Combined (new series)

Source: CSO, CRISIL Research

(See Annexure: The role of deflator in explaining new GDP numbers for further details)

What explains the disconnect between ground-level indicators such as IIP and industrial GDP growth?
While GDP is a measure of value-addition, Index of Industrial Production (IIP) is a volume/output indicator. The
value added is obtained by subtracting the value of intermediate inputs from the value of economic output. Thus,
these two indicators can be different, depending on the movement of intermediate consumption and prices.
Accordingly, value added can increase even when value of output remains unchanged because of a fall in the
value of intermediate consumption. For instance, in the manufacturing sector in fiscal 2015, the value added grew
faster than output because the inputs used for production grew at a slower pace than the value of output produced.
The value of inputs can decrease due to a fall in the price of inputs or in the amount used to produce a unit of
output, reflecting increased efficiency. (See Annexure: Role of deflator and efficiency in pushing GDP up for further
details)
It must also be noted that IIPs base year is still 2004-05, while GDPs has moved up to 2011-12. In IIP, the basket
of products and producing entities are fixed in the base year. This implies producers/products entering/exiting the
market do not reflect in the IIP in subsequent years. These imperfections become bigger as we move further away
from the base year. This is another factor which can explain why the industrial GDP and IIP numbers appear to be
at odds. (See Annexure: The disconnect between IIP and GDP for comparison between IIP and GDPs industrial
estimates).
But nominal indicators correlate well with nominal GDP
While real GDP seems at odds with various ground-level indicators, nominal GDP is seen to be growing in line with
nominal indicators such as growth in credit and topline of corporates.

Nominal GDP growth and credit growth

Nominal GDP growth and corporate topline growth

%

16.00

25.0

14.00

20.0

12.00
15.0

10.00

10.0

8.00

5.0

6.00
4.00

Nominal GDP growth

2.00

Credit growth

Nominal GDP growth

FY16

FY15

FY14

0.00

FY13

2016-17 F

2015-16

2014-15

2013-14

2012-13

2011-12

2010-11

2009-10

0.0

Revenue growth

Source: Reserve Bank of India, CSO, CRISIL Research

Does the new series have higher discrepancies?

GDP can be estimated using either the production or the expenditure approach. In the former, GDP is estimated by
summing up value added across various sectors of the economy such as agriculture, industry and services. This is
also called the supply side estimation of GDP.
GDP can also be calculated by summing up the expenditure on final goods and services produced in the economy.
This could be household consumption expenditure, government consumption expenditure, and capital formation
comprising fixed capital formation, and stock accumulation. This is also referred to as the demand side estimation
of GDP.
The refrain is that the GDP is estimated more accurately from the supply side than the demand side. And
discrepancy is the difference between supply and demand-side estimates of GDP, used to match demand with the
supply side. Therefore, discrepancies capture imperfections in demand-side measurement and do not reflect the
quality of the headline GDP growth.
Discrepancies as a percentage of GDP in the new series are much lower compared with the old series. In the new
series, however, fiscal 2016 saw a discrepancy of 1.9% of GDP (real terms), which is significantly higher than
before. That said, the discrepancies had reached high levels even in the old series.
While discrepancy in real terms increased in fiscal 2016, discrepancy in nominal terms continued to decline. A
possible explanation for this anomalous behaviour is given in Annexure: Reconciling declining nominal discrepancy
and increasing real discrepancy.

Discrepancies in the old and new series

At constant (real) prices

% of GDP

0
-1

-1

-2

-2

New base

Old base

2016

2015

2014

2013

2012

2011

2010

2009

2008

2007

2016

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

Old base

2006

-3

-3

2005

% of GDP

At current (nominal) prices

New base

Source: CSO

Are the anomalies associated with the new series transitory or structural?
We have seen that the significant fall in WPI inflation, which even reached negative territory, has led to a sharp
decline in the GDP deflator. This has led to high and accelerating real growth at a time when nominal growth is
declining. However, as WPI has started moving up, this anomaly is expected to reduce.
As explained earlier, since GDP is a measure of value added, it has been benefitting from lower value of
intermediate consumption even as output did not increase much. A rise in WPI would make the value of
intermediate consumption rise once again. That would remove the disconnect with ground-level volume-based
indicators such as IIP and corporate revenues.
Thats why we believe the anomalies associated with the new GDP series are transitory in nature.

Annexure
How different is the new series?
GDP in the new series is different from the old series in the following respects:
Change in level terms
In the common years for which data is available in both the old and new series (fiscals 2013 and 2014), GDP at
current prices -- or nominal GDP -- has been revised down in the new series. GDP at constant prices, or real GDP,
has been revised up.
The downward revision in estimating nominal GDP is on account of sectors such as trade. In the old series, value
addition in trade retail and wholesale was estimated using the gross trading income index, which is a volume
indicator. The new series, which estimated the value added in trade using results from a 2011 survey of the
unlisted sector (National Sample Survey, 67th Round), found the old series overestimating the numbers and
therefore, in the new one, this has been estimated at a lower level.
The upward revision of real GDP in the new series can be attributed to lower value of the new deflator.
Real GDP at market prices (Rs lakh crore)

Nominal GDP at market prices (Rs lakh crore)

140.0

120.0

120.0

100.0

100.0

80.0

80.0

60.0

60.0

40.0

40.0

20.0

20.0

Old (2004-05 base)

New (2011-12 base)

Old (2004-05 base)

FY16

FY15

FY14

FY13

FY12

FY11

FY10

FY09

FY08

FY07

0.0

FY06

FY16

FY15

FY14

FY13

FY12

FY11

FY10

FY09

FY08

FY07

FY06

FY05

0.0

FY05

140.0

New (2011-12 base)

Source: CSO

Change in growth
Past experience suggests some changes in growth level are normal when the base is revised, but the trend does
not change significantly. However, this time there was a sizeable change in growth rates, and in the trend, too. In
the common years, both real and nominal rates have been revised up. At the same time, according to the new
series, while nominal GDP growth has been trending down, it is the opposite for the real growth.
Reasons for change in sectoral composition of GDP
There have been significant changes in the contribution of manufacturing and trade, hotels, transport,
communication services to overall GDP/GVA. Manufacturings share has gone up 3.4 percentage points to 18.1%,
while that of trade, hotels, transport, communication services has come down by 7.5 percentage points to 17.2%.
The enterprise approach includes more activities under manufacturing, leading to an increase in its share.
However, correcting the upward bias in estimating some services especially trade has reduced their share in
GVA.

The role of deflators in explaining the new GDP numbers

Deflators play a significant role in the new series as they are used to derive 88.6% real GDP from nominal GDP.
For the remaining 11.4%, real GDP is estimated using volume indicators. The following table shows sector-wise
deflators.
Deflators for different sectors of GDP
Nominal GVA

Nominal GVA

Deflated by relevant WPI

Deflated by aggregate WPI Deflated by relevant

CPI deflator

Estimated using volume

Indicators

Industry (20.4%)

Services (20.7%)

Services and industry(30%)

Services and
industry (11.4%)

All manufacturing
sectors

Trade and repair services

Total communication and services Railways

related to broadcasting

Mining and quarrying (coal & Hotels and restaurants

lignite, crude petroleum and
natural gas) (*)

Nominal GVA

Real GVA

Ownership of dwellings

Road transport

Storage

Education

Water transport

Other financial
corporations

Health and social work

Air transport

Insurance corporation and Services

pension funds
organisations

of

membership Services incidental

to transport

Information and computer- Arts, entertainment and recreation

related services

Monetary financial
institutions#

Professional, scientific and Personal services including washing, Electricity

technical activities, including hair
R&D
dressing, custom tailoring and
funeral-related services
Administrative and support Private household with employed Gas
service activities and other person
professional activities
Real estate

Public administration and defence

Mining (minerals)

Water supply; remediation and other

utility services
Construction

Sectors wrongly estimated

Sectors correctly estimated

Note: Numbers in brackets indicate share in gross value added. Shares are averaged for fiscals 2012, 2013 and 2014
(*) 60% of GVA of mining and quarrying
(#) Mixed procedure
Source: Mid-year economic analysis 2015-16, Ministry of Finance, Government of India

Imperfections in deflator
Not all GDP sectors are being deflated appropriately in the new series. In particular, some producer services
(accounting for 20.7% of GDP and listed in the second column in the table above) are being deflated incorrectly
using aggregate WPI in the absence of relevant producer prices. When CPI and WPI move in sync, this inaccuracy
does not lead to a significant bias in estimating real growth. However, the gap between these indices has been
widening since 2013 and reached 7.4% in fiscal 2016 (see graph: Deflator aligned more with WPI than CPI). With
the gap beginning to narrow, this bias would reduce.
The second potential imperfection can come from using volume indicators to estimate real GVA. As shown in the
above table, these sectors account for 11.4% of the total GVA.

Role of deflator and efficiency in pushing GDP up

As discussed earlier, GDP is the sum of value added across sectors, and the value added can increased even if
the value of output remains unchanged because of a decrease in the value of intermediate consumption. The value
of intermediate consumption can decrease due to (1) a fall in the price of inputs, or (2) in the amount used to
produce a unit of output, reflecting increased efficiency. For instance, in the mining sector in fiscal 2015, while
growth of intermediate consumption in nominal terms was negative, growth in real terms was positive. Thus, the
decrease in the value of intermediate consumption can be explained more by decline in input prices than by
increase in productivity.

Price effect versus efficiency increase in mining

Nominal growth

Real growth

30

30

25

25

20

20

15

15

10

10

0
2014

-5

2015

2014

-5

-10

2015

-10
Output

Source: CSO

Intermediate consumption

GVA

Output

Intermediate consumption

GVA

The disconnect between IIP and GDP

As shown in the following charts, IIP growth figures do not correlate with sectoral GDP growth estimates as
measured by GVA at basic prices. Since GDP is a measure of the value added, it would be better to compare
growth in value in output with IIP growth. However, even here, the two indicators do not move in sync.

Comparing IIP with industrial GDP estimates

Manufacturing

Mining

Electricity

15

11

11

10
6

6
5

0
2013

2014

2015

2016

-4

2013

2014

2015

2016

-5

Output

GVA

IIP growth

2013

2014

2015

2016

-4

Output

GVA

IIP

Output

GVA

IIP

Industrial growth estimates are measured at 2011-12 prices

Source: CSO

It must be noted that IIPs base year is still 2004-05, while GDPs base year has moved to 2011-12. In IIP, the
basket of products and producing entities are fixed in the base year. This implies producers/products
entering/exiting the market do not reflect in the IIP in subsequent years. These imperfections become bigger as we
move further away from the base year. This is another factor which can explain why the industrial GDP and IIP
numbers appear to be at odds.
It must also be noted that in the old series, the first estimate of the entire manufacturing sector was derived by
applying the IIP growth to estimates of the previous year. These estimates were then updated with ASI figures
when they became available. In the new series, only the unorganised sector and quasi-corporation segments of the
manufacturing sector are estimated using IIP until the final ASI data becomes available.

Reconciling declining nominal discrepancy and increasing real discrepancy

In fiscal 2016, while real discrepancies rose 2 percentage points from the previous year to 1.9% of GDP,
discrepancies in nominal terms continued to decline, reaching nearly 0%. How can they be reconciled in the same
year?
As suggested by Arvind Virmani, former chief economic advisor, Government of India 2, the answer lies in the rising
difference between demand- and supply-side deflators. If nominal demand and supply-side GDP are deflated
differently, it will lead to different real values. As shown in the following figure, the difference between demand- and
supply-side deflators was the highest in fiscal 2016. Thats because a major proportion of the demand-side GDP is

Gross Domestic Perplexity, an article in The Indian Express in 2016 by Arvind Virmani

deflated using CPI, while a major proportion of the supply-side GDP is deflated using WPI. As mentioned earlier,
fiscal 2016 was also the year when the wedge between CPI and WPI was the widest.
Diverging demand- and supply-side deflators

Deflators

9
8
7

Growth rate

6
5

4
3
2
1
0
2013

2014
Supply side

2015

2016

Demand side

Source: CSO, CRISIL Research

Contribution of net product taxes in GDP

GDP at market prices = GVA at basic prices + net product taxes
This suggests GDP can also rise because of an increase in net product taxes.
At current prices, net product taxes increased 27.7% in fiscal 2016, almost double the rate of the previous year. At
constant prices, too, net product taxes increased 11.9% in fiscal 2016, the highest growth rate in five years.
Net product taxes headed north

Growth in net product taxes

30.0
25.0

20.0
15.0
10.0
5.0
0.0
2013

2014
Current prices

Source: CEIC, CRISIL Research

2015
Constant prices

2016

While other sectoral deflators have decreased, the tax deflator has increased 14% in 2016, reflecting an increase in
indirect tax and collection rates. This is important in analysing the governments income from taxes, but something
the computation of taxes at constant prices is unable to capture. Thus, it may be more prudent to see tax
collections at current prices to gauge the governments increasing share in GDP.

Tax deflator at odds with other sectoral deflators

16.0
14.0
12.0
10.0
8.0
6.0
4.0
2.0
0.0

2013

-2.0

2014

2015

2016

-4.0

Overall

Agriculture

Industry

Services

Net product taxes

Source: CSO

Analytical contacts
Dharmakirti Joshi
Chief Economist, CRISIL Ltd.
dharmakirti.joshi@crisil.com

Adhish Verma
Economist, CRISIL Ltd.
adhish.verma@crisil.com

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Media Relations

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CRISIL Limited
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Shamik Paul

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Economic Analyst, CRISIL Ltd.
pankhuri.tandon@crisil.com

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