On February 27, India will release a new series of national income accounts, shifting the base from 2011-12 to 2022-23, alongside methodological reforms intended to align national accounts with existing economic realities. This transition is not a benign technicality. It has profound implications for economic narrative, policy formation and federal fiscal dynamics.
At its core, revising the GDP base year sets a new benchmark that reflects the current structure of the economy rather than one that predates critical shifts in technology, consumption patterns, and sectoral composition. An outdated base year implicitly assumes that the relative weights of agriculture, manufacturing, services, and digital services have not meaningfully changed for over a decade, an assumption clearly at odds with observed transformations in India’s economic landscape.
However, it is the methodological refinements that matter most. A key change is the expanded use of administrative and survey-based data to replace older proxy-driven estimation methods. For instance, using the Periodic Labour Force Survey to determine employment composition is a clear improvement over relying on employment and unemployment surveys from 2010-11, which no longer reflect current labour market conditions.
Similarly, data from the Annual Survey of Unincorporated Sector Enterprises allows better measurement of informal firms, reducing the earlier dependence on fixed ratios between formal and informal output that implicitly assumed stable structural relationships over time. Emerging segments such as digital services, platform-based activity, and modern financial intermediation, which were either absent or imperfectly represented earlier, will now be better captured.
Equally important are changes in how real GDP is computed. The Wholesale Price Index, widely used in the past, tracks prices of traded goods at the producer level and largely excludes services. It also reflects movements in input prices rather than what consumers actually pay for. When applied to services, this can distort growth estimates, making real output appear higher when input prices fall or lower when consumer prices rise faster than wholesale prices.
The revised framework moves toward greater use of sector-appropriate deflators, including consumer price indices and, where feasible, double deflation methods that separately account for output and input prices. In this context, ongoing revisions to the CPI, based on the Household Consumption Expenditure Survey 2022-23, will better reflect today’s consumption patterns. These changes allow a cleaner separation of price effects from real growth and improve the reliability of productivity and growth assessments in a services-dominated economy.
The next question, therefore, is how these revised estimates will shape economic policymaking, particularly at the federal and state levels. In India’s federal fiscal architecture, state budgets, borrowing limits, and central tax devolution formulas are tied to Gross State Domestic Product (GSDP) figures. Until now, GSDP was largely derived through apportionment rather than direct measurement. For many sectors, especially services, national value added was first estimated and then distributed across states using indicators such as employment shares or wage bills drawn from older surveys.
This approach implicitly assumed that relative state shares within sectors remained stable over time, an assumption that has become increasingly untenable as states have diverged in their growth paths, sectoral composition, and degrees of formalisation. The revised series reduces reliance on apportionment by drawing more heavily on state-specific administrative and survey data. Improved use of GST records, enterprise surveys, and labour market data allows state output to be estimated more directly, especially in services, informal activity, and digital sectors.
These changes matter because GSDP is a core anchor of state fiscal policy. Under the Fiscal Responsibility and Budget Management framework, fiscal deficit and debt limits are expressed as ratios to GSDP. If GSDP is revised upward due to improved measurement, these ratios mechanically improve, expanding borrowing headroom even without any change in underlying fiscal behaviour. Conversely, a downward revision may lead to tighter fiscal constraints.
Additionally, revisions to GSDP can affect intergovernmental fiscal transfers through the Finance Commission process mandated under Article 280 of the Constitution. Finance Commissions determine the horizontal distribution of central tax revenues across states using formula-based criteria that draw directly on GSDP and per capita GSDP. Per capita GSDP is used to compute income distance, a key component of the devolution formula that measures states’ relative revenue-raising capacity.
In this context, it is possible that an upward revision in GSDP reduces a state’s income distance and can lower its share in tax devolution. Thus, changes in GSDP can alter relative state positions within the devolution framework, redistributing transfers across states through a purely statistical channel. In this way, revisions to GSDP can affect fiscal entitlements without any immediate change in real economic activity, highlighting why GDP measurement has direct implications for fiscal federalism.
The revision also feeds into external perceptions of India’s economy, including how investors assess individual states. GDP and GSDP are central inputs in investment decisions. Sovereign risk assessments rely on GDP-based ratios such as debt-to-GDP and fiscal deficit-to-GDP to evaluate macroeconomic stability, while state-level investors use GSDP growth, per capita GSDP, and sectoral composition to assess market size, demand potential, and fiscal capacity across states.
A revised base year that improves the measurement of services, informal activity, and digital sectors can, therefore, reshape how states are ranked and compared by investors. States that appear fiscally stable under the revised methodology may attract greater investment, while others may see relative interest weaken. This underscores why accurate GSDP measurement matters for the spatial allocation of investment within the Indian economy.
Ultimately, India’s GDP revision should be seen not as a one-off adjustment but as a renewed commitment to robust statistical governance. The true test is not the size of the upward (or downward) surprise, but whether it sparks a lasting culture of regular updates to the measurement systems. As the economy continues to evolve, periodic revisions must become routine and methodologically sophisticated. Only then can policymakers, analysts, and citizens confidently base their judgements on data that genuinely capture economic performance and structural change.
The writer is Research Associate at Centre for Social and Economic Progress, New Delhi. Views are personal
