India’s New Services Index: A Leap in Economic Measurement

India’s Ministry of Statistics and Programme Implementation is set to unveil a new Index of Services Production (ISP) today, marking a significant methodological advancement in tracking the nation’s economic output. This trial index aims to provide a high-frequency indicator for the formal services sector, which constitutes over half of India’s economy and is a major employment generator.

The core challenge in measuring services, unlike industrial production, lies in their inherent intangibility. Output in the services sector cannot be readily quantified through physical units, making its assessment considerably more complex than compiling the Index of Industrial Production. This structural hurdle has historically complicated efforts, as noted by former chief statistician Pronab Sen, who highlighted difficulties in defining a ‘product’ within services.

Past attempts to establish a comprehensive services index faced significant roadblocks. A Technical Advisory Committee on Indices of Services Production, formed in 2004 and reconstituted in 2010, saw its June 2019 report recommend an index for only seven sub-sectors, stalling a broader implementation. This underscores the persistent difficulty in creating robust, measurable proxies for diverse service activities.

However, recent improvements in India’s statistical and administrative data ecosystem have made the current ISP compilation feasible. This represents a critical structural enabler. The availability of Goods and Services Tax (GST) data on outward supplies from service-producing units, alongside the launch of the Annual Survey of Incorporated Services Sector Enterprises, provides unprecedented granular information. Additionally, administrative data from key sectors like railways, aviation, banking, and insurance will be integrated into the index.

The new ISP will encompass 19 distinct sub-sectors, utilizing 2024-25 as its base year and will be released with a 60-day lag from the end of each reference month. GST data is particularly crucial, forming the basis for 15 of these 19 sub-sectors. The Technical Advisory Committee’s report cautions that any future removal of GST from these categories could necessitate the discontinuation of their respective ISP components, highlighting the reliance on this data stream.

In terms of weighting, information and computer-related services will carry the largest influence in the trial ISP, accounting for 21.91% of the index. Retail trade follows closely with a weight of 18.49%. Despite these comprehensive efforts, the current framework for the ISP still excludes sectors that collectively represent nearly 33% of the total Gross Value Added (GVA) of the services sector. These omissions include public administration and defense, financial services of pension funds, and services predominantly within the unincorporated sector.

The introduction of the ISP, even with its initial trial status and acknowledged exclusions, signifies a pivotal step towards a more nuanced understanding of India’s economic dynamics. By leveraging enhanced data infrastructure, the Ministry of Statistics is addressing a long-standing structural gap in economic measurement, providing a framework for better assessing the growth and contributions of the nation’s vital services economy in the years ahead.