The GDP Measurement Debate

How India changed its GDP methodology in 2015, why some economists argued growth was overstated, and how the debate shows the challenges of measuring a large informal economy.

In 2015, India released a new GDP series with base year 2011-12.

What changed

Used the MCA-21 database of company filings instead of older industrial surveys.
Measured value added more like international standards.

The controversy

The new series showed higher growth in some years than the old series, while other indicators like credit and industrial output seemed weaker.
In 2019, former Chief Economic Adviser Arvind Subramanian argued growth may have been overstated by around 2.5 percentage points a year between 2011-12 and 2016-17.
The government’s economists disputed this.

The informal sector problem

India’s large informal sector is hard to measure. It’s often estimated using formal sector trends, which can mislead when shocks like demonetisation (2016) and GST (2017) hit informal firms harder.

Next revision

MoSPI planned a new GDP series with base year 2022-23, incorporating new data sources like GST.

Why it matters

GDP numbers influence investor confidence, policy and credibility.

The informal gap

After demonetisation, small cash-based businesses suffered. If GDP estimates assume they grew like large formal firms, total growth looks stronger than reality.

Thinking GDP is a precise count

It's an estimate, especially hard with a large informal sector.

Key takeaways

India's GDP methodology changed in 2015.
Some economists argued growth was overstated.
Measuring the informal sector is a key challenge.
A new base year of 2022-23 was planned.