India is attempting to fix a long-standing blind spot in tracking the economy in real time. The National Statistics Office has proposed an Index of Service Production, with 2024-25 as the base year. The case is straightforward: services account for over half of gross value added, but there is no high-frequency gauge comparable to the Index of Industrial Production.
For decades, policymakers and markets have relied on the IIP to read momentum. It captures industry well enough. It says little about services. That gap matters in an economy where trade, transport, finance and information technology drive growth, jobs and exports. There is no comparable monthly signal for these sectors.
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In the absence of a comprehensive tool, assessments rely on partial proxies. Quarterly and advance national accounts estimates draw on aggregated indicators for trade, hotels, transport and financial services. These arrive with lags—months in some cases, up to two years in others. The lag blunts policy response and can mask turning points during volatility.
Design of Index of Service Production
The proposed index aims to close this gap. It will provide high-frequency, disaggregated data at the National Industrial Classification 2025 two-digit level and cover about 70% of services GVA. It will sit alongside the IIP to give a more contemporaneous read of activity. The premise is simple; the execution is not.
The framework leans on goods and services tax data. Since 2017, GST has created a large, transaction-level dataset across sectors. The NSO proposes to use monthly outward supplies reported in GST returns as a proxy for turnover in market-oriented services—wholesale and retail trade, transport, accommodation, IT, real estate and professional services. The attraction is frequency and coverage of the formal economy.
This creates a structural bias that cannot be ignored. GST data captures the tax-compliant, formal segment of services with reasonable fidelity. It is less effective in reflecting activity in the informal and semi-formal economy. Large segments of retail trade, road transport, personal services and small professional establishments either remain outside the GST net, operate under threshold exemptions, or report under simplified composition schemes. Even within the formal system, compliance gaps and reporting practices can distort short-term movements.
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The implication is not trivial. The proposed index will, by design, track formal sector momentum more closely than the broader services economy. During periods of stress or recovery, when informal activity diverges from organised sector trends, the index may overstate resilience or understate weakness. The ISP will be a high-frequency indicator, but not a comprehensive one. That distinction needs to be explicit in how the data is read.
Multi-source estimation
The NSO proposes a multi-source approach to mitigate these gaps. Line ministries will supply sectoral data where GST is thin or unrepresentative. The Annual Survey of Incorporated Services Sector Enterprises will provide detail on output, employment and value added for sectors such as health, education and hospitality. This reduces reliance on a single proxy, but does not eliminate the underlying coverage asymmetry.
A critical step is deflating nominal turnover to real output. The plan to use service producer price indices is notable. India has lagged in building these and has often used consumer price indices as proxies. The Department for Promotion of Industry and Internal Trade is working on PPIs for banking, insurance, telecommunications and transport. Where PPIs are unavailable, sector-specific CPIs will be used.
The choice of deflators will matter. Services inflation behaves differently from goods inflation, and mismeasurement here will affect real output estimates. Until a robust set of service PPIs is available, the index will carry an additional layer of approximation.
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Measurement challenges
Services are intangible. Output in finance, education or professional services is not observed in physical units. Measurement requires proxies and assumptions. The diversity of activities complicates standardisation. The NSO acknowledges earlier attempts were held back by these constraints. The current proposal benefits from better data availability, but the conceptual difficulty remains.
Advanced economies have workable models. The United Kingdom and the European Union compile service production indices as part of short-term statistics. These inform monetary and fiscal policy and track cycles. The difference is structural. These economies have higher levels of formalisation, which makes administrative and survey data more representative. India’s adaptation will have to contend with a different base.
Policy quality follows data quality. As India targets higher growth, policymakers need granular, timely signals. A credible ISP can act as an early warning system for sectoral slowdowns or accelerations. It can improve the reading of domestic demand conditions and refine policy calibration.
The discipline will be in interpretation. The index will need to be read alongside other indicators—employment data, credit flows, consumption proxies—to avoid over-reliance on a single measure. High-frequency data improves visibility. It does not eliminate uncertainty.