India’s new GDP series, with 2022-23 as the base year, has introduced a significant methodological upgrade in the measurement of manufacturing value addition. According to the statistics ministry’s detailed ‘Sources and Methods’ document, the double deflation technique has been applied in 28 of the 30 manufacturing categories. Work is continuing to extend the method to the remaining two segments as well. Alongside this change, the revised series has more than doubled the estimated household savings held in the form of gold and silver ornaments for 2022-23, placing the figure at Rs 1.65 lakh crore.
Understanding Double Deflation
Gross Value Added, or GVA, measures the contribution of a sector after deducting the cost of intermediate inputs from the value of output. When these figures are expressed in constant prices to remove the effect of inflation, statisticians must decide how to adjust both the output and the input sides for price changes.
In the single deflation or single extrapolation approach, a single price index is often applied, or output is extrapolated using a volume indicator while assuming input prices move in parallel. Double deflation, by contrast, separately deflates the value of output using an output price index and the value of intermediate consumption using an appropriate input price index. The difference between the two deflated series yields real GVA.
This method is widely regarded as superior when the prices of outputs and inputs diverge. If input costs rise faster than output prices, single deflation can distort the picture of real value addition. Double deflation captures that divergence more accurately.
Coverage in the New Series
The new series has implemented double deflation across the bulk of the manufacturing sector. Only two categories still rely on the single extrapolation method: the group covering production, processing and preservation of meat, fish, fruit, vegetables, oils and fats, and the manufacture of pharmaceuticals, medicinal chemicals and botanical products. Officials have indicated that efforts are under way to bring these remaining segments under double deflation as better price data become available.
Until the introduction of the 2022-23 base year series, double deflation in India’s national accounts was largely confined to agriculture and mining and quarrying. Expanding it to manufacturing represents a major step toward aligning Indian practice more closely with international recommendations, including those of the International Monetary Fund, which prefers double deflation for volume measures of GDP where feasible.
Why the Change Matters
Manufacturing is input-intensive. Firms purchase raw materials, energy, components and services whose prices can move independently of the prices at which finished goods are sold. When these relative price shifts are ignored, estimates of real growth can become less reliable. By deflating outputs and inputs separately, the new methodology aims to provide a clearer view of actual volume changes in value addition.
The availability of more granular price information has made the transition possible. Item-level producer price indices and expanded commodity coverage allow statisticians to map input structures from the Annual Survey of Industries more precisely to relevant price series. This granularity reduces reliance on broad aggregate indices that may mask important relative price movements.
Revised Estimate of Household Gold and Silver Savings
The new series has also revised upward the estimate of household savings in the form of gold and silver ornaments. For 2022-23, the figure has been placed at Rs 1.65 lakh crore—more than double the level recorded under the previous methodology. Gold and silver have long occupied a distinctive place in Indian household balance sheets, serving both as consumption goods and as stores of value. Improved measurement of this component contributes to a more complete picture of domestic savings.
Household savings remain the dominant source of funds for investment in the Indian economy. More accurate capture of physical savings, including valuables, therefore strengthens the overall quality of the national accounts and improves understanding of resource mobilisation.
Broader Improvements in the New Series
The shift to a 2022-23 base year incorporates updated data sources, refreshed weights reflecting the current structure of the economy, and enhanced reconciliation through supply and use tables. Officials have emphasised that the revisions are driven by better information and improved methods rather than by any intent to alter growth narratives. Nominal GDP levels for earlier years have been revised, in some cases downward, as the new framework is applied consistently.
The statistics ministry has also signalled that a full back-series linking the new estimates with earlier years is under preparation and is expected to be released after necessary consultations. Such a series will allow analysts to examine longer-term trends on a consistent methodological basis.
Implications for Analysis and Policy
For economists and policymakers, the expanded use of double deflation should yield more stable and meaningful real growth estimates for manufacturing. It reduces one source of potential bias that arises when input and output prices diverge sharply. At the same time, users of the data will need to exercise care when comparing figures across the old and new series, especially for periods before the formal back-series becomes available.
The higher estimate of household savings in gold and silver ornaments also invites fresh examination of how Indian families allocate their savings. It underscores the continued importance of valuables alongside financial assets and physical assets such as housing.
Moving Forward
The ‘Sources and Methods’ document provides welcome transparency into the construction of the new GDP series. By documenting the extensive application of double deflation in manufacturing and the upward revision in measured household gold and silver savings, it allows users to understand both the strengths and the remaining limitations of the current framework.
As work continues to bring the final two manufacturing categories under double deflation and as the back-series is finalised, India’s national accounts will move closer to best international practice. The ultimate test of any statistical revision lies in its ability to describe economic reality more faithfully. The changes introduced in the 2022-23 base year series represent a substantive effort in that direction.
Read more – leventescortq.com