New Delhi: The Ministry of Statistics and Programme Implementation (MoSPI) has proposed the creation of a monthly indicator to measure the output of India’s services sector, with Goods and Services Tax (GST) data set to play a key role in its compilation.
In an ‘approach paper’ released on Monday, the ministry invited public comments by May 5 on its proposal to develop an Index of Service Production (ISP), which will track the performance of the formal services economy. The new index will use 2024–25 as its base year.
Filling a key data gap
At present, India lacks a high-frequency official indicator to measure services sector output. While the Index of Industrial Production (IIP) tracks industrial activity on a monthly basis, there is no equivalent for services.
Policymakers currently rely on the Purchasing Managers’ Index (PMI) for insights into services activity. However, the PMI is a survey-based sentiment index and does not directly measure actual output.
The proposed ISP aims to bridge this gap by offering a more accurate, data-driven assessment of services sector performance.
GST data to drive measurement
MoSPI said GST data would serve as a crucial input for compiling the new index. Since GST captures transactions across a wide range of economic activities, it provides a robust and timely dataset to estimate output trends in the formal services sector.
The use of GST data is expected to improve the reliability and frequency of the indicator, enabling policymakers to better track economic momentum.
Wide sectoral coverage
The proposed index will cover a broad spectrum of service sub-sectors, including:
- Wholesale and retail trade
- Transportation and storage
- Accommodation and food services
- Publishing and telecommunications
- Consultancy and computing infrastructure
- Finance and insurance
- Real estate
- Arts, sports, and recreation
This comprehensive coverage is aimed at reflecting the diversity and scale of India’s services economy.
Importance of the services sector
According to MoSPI, the services sector is the most dynamic and rapidly expanding segment of the Indian economy. It contributes more than half of the country’s Gross Domestic Product (GDP) and provides employment to millions.
Over the past few decades, services have played a critical role in driving India’s economic transformation, particularly in areas such as information technology, finance, and telecommunications.
Part of broader statistical overhaul
The move comes ahead of a planned revision of the IIP next month, as part of a broader effort by MoSPI to modernise and strengthen official statistics.
Along with the IIP, the Consumer Price Index (CPI) is currently one of the key high-frequency indicators used to assess economic conditions, especially inflation trends.
The introduction of the ISP is expected to complement these indicators by providing a clearer picture of the services sector’s contribution to economic growth.
Policy and market implications
A reliable monthly services index could significantly enhance economic policymaking by offering timely insights into demand, output, and sectoral performance.
It would also be closely watched by investors, analysts, and businesses, helping them make informed decisions based on real-time economic trends.
Conclusion
The proposed Index of Service Production marks a significant step towards improving India’s economic data framework. By leveraging GST data, the government aims to provide a more accurate and timely measure of the services sector, strengthening policy decisions and economic analysis.