The new national accounts, rebased from 2011-12 to 2022-23, have stirred more controversy than any statistical exercise in recent memory. Estimates for this year’s April-June quarter which were released alongside fuelled more debate: a robust growth of 7.8% upon a base that was revised successively lower over 10 months. There’s universal agreement that the new methodology adopted for this revision is superior and that India’s large informal economy is now measured more realistically. However, doubts have arisen over the smaller size of the economy and critical metrics used to filter price effects and obtain the true economic growth. There are other puzzles. The back series, which will apply the new methods and information bases back to 2011-12, is expected only by the year end. This may shine a light but what do the new numbers tell us in the meantime?
The answer is mixed. Measurement has improved unequivocally. But the revision also changes three things we knew about the Indian economy — its size, structure, and recent growth path and, by extension, the ground lost in the pandemic.
Size has been the most contentious. In shifting the base year for GDP computation, the prices of the chosen year are used as weights to convert other years’ output into volumes so that growth can be compared without the noise of price changes (from one year to another). In this sense, rebasing is about real GDP, commonly known as constant-price GDP. Therefore, switching the base year should leave the output value of each year in its own prices (termed as nominal GDP) largely as it was; only real growth and the implied deflator (the nominal/real GDP ratio) should change. That’s why past nominal GDP adjustments in moving to another year (for example, from 2004-05 to 2011-12) have been small and mostly upward. This time though, the nominal size of the economy reduced a little over 3%, close to Rs10 trillion each year. This is more than a rounding error.
The likeliest explanation is the scale of the overhaul. Two changes particularly stand out, both superior to past practice. One is the use of separate prices for inputs and outputs — conceptually correct, internationally harmonised, and which uses finer price data across industries. The second is the use of direct surveys of the labour force and unincorporated enterprises to capture the informal sector instead of proxy indicators. In this context, earlier survey rounds had recorded fewer unregistered/informal manufacturing units and workers compared to a decade ago, so a downward revision was not unanticipated. Without a comparable series — neither a parallel older series (base 2011-12) nor the new one recast backwards — a precise attribution of what drives the reduction is difficult.
There’s a structural surprise. Agriculture now accounts for one-fifth of the Indian economy against roughly 15% under the old base for the same year. Manufacturing and the trade, hotels, transport and communication cluster of services are correspondingly smaller. This reverses the earlier picture in which both comfortably outweighed agriculture. The long-term decline of the farm sector’s share does continue in the new series. Manufacturing inches up after 2022-23 (the new base year) but it still trails agriculture. One takeaway is that Indian manufacturing must now pace faster merely to regain the share we understood it already had.
The implications go beyond accounting. An economy more agrarian than what was believed earlier is one where structural transformation — the movement of workers and production from farms to factories and modern services — has been slower than assumed. Is this what’s reflected in the visible increase in the number of workers in agriculture captured in periodic labour force
surveys in recent years? Another inference is that agriculture has done more of the heavy lifting in recent growth, contributing several times over what the old series credited it with. Economic growth that leans on agriculture yields smaller productivity gains than growth driven by industry. Neither signifies advancement.
The third change concerns the growth trajectory. The most striking revision is to 2023-24 — the old series recorded a sharp rebound to over 9% in that year after some easing in the previous year from a post-pandemic bounce. The revision prunes this sharply by nearly two percentage points, thereby turning an acceleration into a mild moderation. This is more than a statistical aberration. For one, macroeconomic policy in 2023-24 was aligned to an economy believed to be growing above capacity — interest rates were held steady through the year therefore, and fiscal policy proceeded according to a backdrop of apparently buoyant growth. The new knowledge in hindsight is that the economy was much cooler than policymakers thought!
A past rewritten this sharply also makes the present less certain: if growth estimates can shift this much after the fact, how much confidence can be placed in the latest prints? At present, estimates of national income for the subsequent years are not yet final.
Finally, the pandemic’s scar runs deeper with this alteration. Post-Covid economic growth averages a bit lower than what was previously observed. For instance, and more tellingly, the economy is now estimated to be lagging more than nine months than it would be had it continued on its pre-pandemic growth path — one month more than the old series showed.
As seen above, there are genuine advances like better measurement of the informal economy and internationally-consistent price deflation in compiling the new national accounts. But the revisions challenge some existing understandings and economic narratives, such as a manufacturing-led transformation — which may need revisiting. Much depends on what the back series reveals. This must explain what drove the nominal downgrade, establish whether the larger agricultural share holds across the decade, and reconcile the new growth path with what we thought we knew about the 2010s. Clarity matters as much as the numbers. Until then, the new series is better
read as a sharper photograph of today’s economy than a settled history of
how it got here.
Renu Kohli is Senior Fellow, Centre for Social and Economic Progress, New Delhi