Life of buildings to gold: Lesser known changes in GDP series

Why in the News

The Ministry of Statistics and Programme Implementation (MoSPI) has released its ‘Sources and Methods’ document for the new Gross Domestic Product (GDP) series. Beyond the widely debated changes, it sets out five lesser known ones, on firm classification, housing and asset values, savings data and rooftop solar.

What is the new GDP series, and what has dominated the debate?

1. What it is: A GDP series measures output against a base year, whose prices and structure act as a fixed yardstick. The new series moves the base from 2011-12 to 2022-23.
2. Why the base is updated: An old base misses how the economy has changed, leaving newer sectors and data sources out or wrongly weighted.
3. The five headline changes: Most debate has covered:
   • the updated base year;
   • double deflation, which adjusts both output and inputs for price changes to get real gross value added (GVA);
   • two price indices for that deflation, the output Producer Price Index and the Banking Services Price Index, tracking prices producers and banks charge;
   • better informal sector estimates from surveys;
   • no gap between GDP measured by production and GDP measured by spending.
4. The takeaway: The quieter changes decide what counts as output and savings, so they shape the numbers as much as the headline ones.

How is a multi-activity enterprise now classified?

1. Old rule, major activity: A firm doing both manufacturing and services was placed wholly in the sector of its major activity.
2. New rule, activity share: GVA is now split by activity. Eg. Of a firm’s Rs 50 GVA, Rs 20 earned from services now goes to services.
3. Data that makes it possible: Companies file annual returns, forms MGT-7 (public and private companies) and MGT-7A (one person and small companies), with the Ministry of Corporate Affairs. These report results, shareholding and loans.

What else is now counted or measured differently?

1. Government housing: Housing given to government staff was not valued before, unlike House Rent Allowance paid in cash. It is now valued at building cost, less repair, maintenance and annual wear.
2. Useful life of buildings: Dwellings are now assumed to last 60 to 75 years, down from 70 to 80, so they wear out faster each year.
3. Household financial savings: Data on shares, debentures and mutual funds now come from the Securities and Exchange Board of India (SEBI), not the Reserve Bank of India.
4. Physical savings: Household savings also include physical assets and valuables such as gold.
5. Rooftop solar: Power households generate from their own rooftop panels is now counted in the utilities sub-sector. Its real GVA was Rs 1.92 lakh crore in April to June 2026.

Why do these changes matter?

1. Truer sector picture: Splitting a firm’s GVA shows the real size of services inside manufacturing companies, which matters for industrial and trade policy.
2. Higher capital consumption: A shorter asset life raises the yearly wear charged on buildings, so net measures of output and savings fall.
3. Wider savings coverage: Pooled funds such as Real Estate Investment Trusts and Alternative Investment Funds now enter household savings.
4. Hidden output recognised: Counting government housing and self generated solar power records services that earlier went unmeasured.

Challenges

1. Comparability with the old series: Methods differ from the 2011-12 series, so long run comparisons need a back series, meaning old years recalculated by the new method.
2. Dependence on company filings: Splitting GVA relies on MGT-7 data, which covers companies and not the unincorporated sector.
3. Estimation assumptions: Asset lives and imputed values such as government housing rest on assumptions that users cannot easily test.

Way Forward

1. Publish a back series: MoSPI should release a linked series so growth before and after 2022-23 can be compared.
2. Extend activity data: Use enterprise surveys to split activity shares for unincorporated firms as well.
3. Explain assumptions openly: Publish the basis for asset lives and imputed values so analysts can test them.

Conclusion

The new series changes not only the base year but also what the economy is judged to produce, own and save. What to watch is whether MoSPI publishes a back series linking the new figures to a decade of old ones.

Back2Basics: Back series

1. What it is: A back series re-estimates GDP for years before the new base year, using the new series’ methods and data.
2. Why it is needed: Without it, old and new years use different yardsticks, so a change in method can look like a change in growth.
3. How it is built: Where new data do not reach back, the two series are spliced, scaling old figures by their ratio in a common year.

Matching Previous Year Question

“[2019] Consider the following statements: 1.Purchasing Power Parity (PPP) exchange rates are calculated by comparing the prices of the same basket of goods and services in different countries. 2.In terms of PPP dollars, India is the sixth largest economy in the world. Which of the statements given above is/are correct? (a) 1 only (b) 2 only (c) Both 1 and 2 (d) Neither 1 nor 2 (a) 1 only (b) 2 only (c) Both 1 and 2 (d) Neither 1 nor 2 Answer: (a)”