Whalesbook
New Index to Track India's Services Output Using GST Data
India is introducing a new monthly Index of Service Production (ISP) to offer more frequent data on its large services sector, which accounts for over half of the nation's Gross Value Added (GVA). With a 2024-25 base year, the ISP aims to provide insights similar to the Index of Industrial Production (IIP) for manufacturing, addressing a long-standing need for better service sector data. The index will primarily use aggregated Goods and Services Tax (GST) Network (GSTN) data, which offers a broad view of economic activity from production and supply information. This step is part of India's ongoing efforts to modernize its statistical systems.
Leveraging GST and Global Trends
The ISP's design reflects a global trend of using administrative data for economic measurement. The GSTN database, already key for tax compliance, is expected to provide detailed information on sub-sectors like trade, transport, finance, and real estate. This approach moves beyond sentiment-based indicators like the Purchasing Managers' Index (PMI), which measure business activity but not actual output. The Department for Promotion of Industry and Internal Trade (DPIIT) is also developing a Producer Price Index (PPI) to adjust service output for inflation, aligning India with international standards where PPIs have largely replaced Wholesale Price Indices (WPI). For context, the IIP's current base year is 2022-23.
Key Challenges in Measuring Services
Despite its forward-thinking design, the ISP faces significant measurement challenges. Sectors exempt from GST, such as health and education, will require separate data collection using administrative sources and the Annual Survey of Incorporated Services Sector Enterprises (ASISSE). Crucially, the large informal sector, a substantial part of India's economy and employment, will not be tracked by GST data. Standardizing output measures for the highly varied services sector, from IT to hospitality, remains difficult. Historically, consistent high-frequency data for segments like real estate and professional services has been scarce. Even for banking and insurance, real output figures were hard to derive from value-only data. Measuring public and non-market services globally often relies on direct activity indicators, showing the complexity in achieving uniform measurement. These data gaps could lead to an incomplete view of the services sector's true output, affecting policy decisions.
Refining the Framework
The Ministry of Statistics and Programme Implementation (MoSPI) is seeking feedback on the ISP's methodology, showing a commitment to refining its approach. The index's success will depend on its ability to integrate data from various sources and adapt to the changing services economy. Developing PPIs and conducting the ASISSE survey are important complementary steps to strengthen the overall statistical framework for services.