India’s service sector needs a new measure

India’s service sector needs a new measure

India s service sector needs a new - India’s economy has shown remarkable endurance even amid global economic challenges, driven by consistent manufacturing output and robust expansion in the services sector. The services industry now accounts for roughly 52.9% of Gross Value Added (GVA), employs nearly 30% of the workforce, and has positioned the nation as a major exporter of services. To better capture its economic significance, a fresh approach to monitoring this sector is essential.

Introducing enhanced statistical tools

Currently, there's no frequent indicator to gauge service sector activity. To address this, the Ministry of Statistics and Programme Implementation (MoSPI) introduced the Annual Survey of Incorporated Services Sector Enterprises (ASISSE) and the Index of Services Production (ISP). These tools aim to refine data quality, update reporting frequency, and expand coverage across service industries.

Unlike manufacturing, where tangible outputs are measurable, services rely on indirect methods due to their intangible nature. Early efforts focused on identifying suitable data sources, variables, and techniques, prioritizing sectors with reliable data like banking, insurance, and telecommunications. However, gaps in comprehensive datasets for other service areas created hurdles. In 2025, MoSPI formed a committee to establish a framework for the monthly ISP, leveraging India’s growing digital data environment.

Revolutionizing data collection with GST

Leveraging Goods and Services Tax (GST) data for statistical analysis represents a major milestone. Since GST records are already compiled, this method avoids extra reporting demands on businesses. MoSPI utilizes product-level GST aggregates to construct the ISP, offering a streamlined approach.

For market-oriented services, outward GST reports align closely with actual production, as services are typically created and consumed simultaneously. Applying appropriate price deflators allows real output estimation. The extensive GST coverage ensures the ISP can be developed with sufficient detail.

Addressing gaps in coverage

Some services, such as healthcare, education, and certain transportation sectors, remain outside the GST framework. In these cases, administrative datasets from railways, aviation, and insurance, along with ASISSE for health and education, provide necessary insights. The ISP integrates multiple sources, offering a tailored solution for India’s unique needs.

Choosing FY25 as the base year reflects its stability and the availability of detailed GST data. This decision also synchronizes with the 2024 base year for the new Consumer Price Index, ensuring compatibility in price deflation techniques for accurate real output measurement.

Initial focus on formal economy

Initially, the ISP will emphasize the formal economy, as GST data serve as the primary source. Activities in the informal sector, including small enterprises and government services, will require supplementary data for complete coverage. MoSPI’s ongoing Annual Survey of Unincorporated Sector Enterprises (ASUSE) will eventually support indices for informal services.

The ISP’s reliance on GST data, rather than the traditional frozen-panel method, ensures dynamic representation. It automatically includes new businesses, tracks diversification, and reflects closures. This adaptability makes the ISP more responsive to economic changes compared to legacy systems.