Why in News?
The Ministry of Statistics and Programme Implementation (MoSPI) has released an Approach Paper proposing the creation of an Index of Service Production (ISP) to measure monthly output in India’s formal services sector. The index will use 2024–25 as the base year and rely significantly on GST Network (GSTN) data. Public comments have also been invited on the proposal.
A Technical Advisory Committee on ISP (TAC-ISP), constituted in May 2025 with 24 experts, prepared the framework after extensive consultations.
What is the Index of Service Production (ISP)?
The ISP is a proposed high-frequency monthly indicator that will track short-term movements in India’s services sector, similar to how the Index of Industrial Production (IIP) tracks industrial activity.
It will be developed by the National Statistical Office (NSO) under MoSPI.
The ISP aims to provide an output-based measure of services activity using actual production data rather than sentiment-based indicators.
Why is the ISP Needed?
India currently publishes two major monthly economic indicators:
- Index of Industrial Production (IIP)
Measures industrial output across:
- Manufacturing
- Mining
- Electricity
- Consumer Price Index (CPI)
Measures retail inflation and forms the basis of headline inflation targeting by the Reserve Bank of India (RBI).
However, despite services contributing more than 50% of India’s GDP and generating substantial employment, India lacks a dedicated monthly indicator to measure actual services output.
This creates a major gap in economic monitoring and policymaking.
Limitations of Existing Indicators
At present, policymakers rely heavily on the S&P Global HSBC Purchasing Managers’ Index (PMI) to gauge services activity.
However, PMI has certain limitations:
- It is survey-based
- Reflects business sentiment rather than actual output
- Captures perceptions of expansion or contraction
- Does not provide production-level data
The ISP seeks to overcome these shortcomings by using hard statistical data.
Sectors Covered Under ISP
The approach paper studies more than 40 service sub-sectors, including:
- Wholesale and retail trade
- Transport and logistics
- Banking and insurance
- Communication services
- Hotels and restaurants
- Real estate
- Professional and technical services
- Entertainment and recreation The selection is based on:
- Availability of output data
- Availability of price deflators
- Consistency of reporting mechanisms
Methodology of the ISP
The ISP framework is aligned with international best practices in national accounting and short-term economic measurement.
Key Features
- Monthly measurement of service sector output
- Standardisation of data across sectors
- Inflation adjustment using price deflators
- Use of administrative and digital data sources The methodology seeks to ensure:
- Reliability
- Timeliness
- Comparability across sectors
Major Data Sources for ISP
- GST Network (GSTN) Data
GSTN data will serve as the primary source for measuring production and outward supplies in formal service activities.
Advantages
- Real-time digital data
- Wide coverage of formal businesses
- Sector-wise production estimates
Limitation
Sectors exempt from GST, such as:
- Health
- Education
cannot be fully captured through GST data.
- Administrative Data
Sector-specific information will be obtained from:
- Government ministries
- Regulatory authorities
- Public institutions
This will help supplement sectors where GST coverage is incomplete.
- Annual Survey of Incorporated Services Sector Enterprises (ASISSE)
MoSPI’s ASISSE survey will provide:
- Enterprise-level insights
- Detailed structural information
- Additional granularity for services output measurement
Exclusion of Informal Sector
One major limitation of the ISP is the exclusion of informal services due to data constraints. The excluded segment accounts for nearly:
- 33% of total services Gross Value Added (GVA) Additionally:
- Health and education alone contribute nearly 10% of services GVA and remain difficult to capture initially.
This may lead to partial representation of India’s overall services economy in the early stages.
Price Adjustment and Deflators
To convert nominal output into real output, price adjustments are necessary.
Ideal Method: Producer Price Index (PPI)
A Producer Price Index measures prices received by producers and is considered the best deflator for production data.
Current Challenge
India does not yet have a comprehensive PPI framework for services.
Interim Solution
MoSPI plans to use:
- Non-food CPI
- Sub-sector specific CPI indices
as proxy deflators until a full PPI becomes operational.
Development of Producer Price Index (PPI)
The Department for Promotion of Industry and Internal Trade (DPIIT) is currently working on:
- Revising the Wholesale Price Index (WPI)
- Developing a comprehensive Producer Price Index (PPI)
A working group has already suggested methodologies for service-sector PPIs in:
- Banking
- Insurance
- Securities
- Air transport
- Railways
- Telecom services
This will eventually improve the accuracy of the ISP.
Significance of the ISP
Better Economic Monitoring
The ISP will provide policymakers with timely insights into India’s largest economic sector.
Improved Monetary Policy
The RBI’s Monetary Policy Committee (MPC) will gain better data for assessing:
- Economic growth
- Demand conditions
- Inflationary pressures
Reduced Dependence on Private Surveys
The index will reduce dependence on private sentiment-based indicators like PMI.
Evidence-Based Policymaking
The ISP aligns with India’s broader objective of strengthening data-driven governance and modernising statistical systems.
Conclusion
The proposed Index of Service Production represents a major reform in India’s economic statistical framework. By providing a reliable monthly measure of services output, it will bridge a long-standing gap in economic data collection.
Although challenges remain regarding informal sector coverage and absence of a full Producer Price Index, the ISP can significantly improve policymaking, economic forecasting, and macroeconomic management. As the services sector continues to drive India’s growth story, the ISP could emerge as one of the country’s most important high-frequency economic indicators.