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India is all set to launch high frequency dataset to capture the formal segment of the services sector, supporting evidence-based policymaking, amid data quality concerns due to the inherent heterogeneous nature of variables and partial or under coverage of the vast informal segment.

Joining the league of Japan, South Korea, China and the European Union, the Ministry of Statistics and Programme Implementation (MoSPI) will launch the Index of Services Production (ISP), which shall be a new macro indicator to measure the short-term changes in the growth of the services sector, the dominant driver of the economy, accounting for about 55% of the gross value added (GVA).

While the Index of Industrial Production long served as an indicator for manufacturing, mining, and electricity; the services sector, which grew by 9.1% in FY26, up from 7.2% in FY25, lacked a comparable index.

Measuring services production is a daunting assignment and also complex than measuring industrial production due to the intangible nature of services, rapid technological change, evolving business models, and fragmented data.

Proxies — as employment, turnover, transaction volumes, passenger kilometres, or subscriber numbers — may suffix but may not accurately capture underlying production, especially during periods of structural change.

As a panacea to the inherent limitations of the present structure, which is dependent mainly on quarterly GDP estimates and indirect indicators, the MoSPI finalised the services index, compiled using outward supply of enterprises registered under goods and services tax (GST); but can potentially leverage digital data in the future.

The GST may not fully satisfy the conceptual requirements of national accounts as its database has been created primarily for taxation rather than statistical purposes. Hence, the new index will blend administrative, and survey data for accurate services sector estimates, improving timeliness and reducing reporting burden.

However, the incomplete coverage of informal enterprises and limited price deflators for many service industries complicate the estimation of real output and productivity as well as influence the accuracy of real GVA.

Deflators show whether growth is owing to jump in the actual quantity of services production, or on account of higher prices.

The sectoral contribution to GVA hit a historic high of 56.4% (FY26 first advance estimates), underscoring the rising importance of modern, tradable, and digitally delivered services.

Conventional deflators struggle to separate price movements from quality improvements, leading to potential biasedness in volume estimates.

The MoSPI’s Services Producer Price Index (PPI) is still on an experimental basis and no weights have been assigned to seven sectors — banking, securities transactions, insurance, pension fund management, railways, air passenger transport and telecom services — as they do not yet cover the entire services sector.

Developing robust quality-adjusted price indices for services remains an area where statistical systems worldwide continue to face conceptual and practical difficulties.

Apart from GST data, the ISP has the advantage of leveraging digital public infrastructure such as corporate filings, and electronic transactions.

Since its rollout in 2017, India’s GST registrations have grown steadily, rising from 66.5 lakh at launch to 1.65 crore active taxpayers at present.

The Unified Payments Interface account for 57%, surpassing cash transactions at 38%.

As the government seeks to strengthen GDP estimation, inflation analysis, and employment projections, the larger informal sector, which contributes over 50% of the GVA, is out of the index, leading to possible data gaps.

The 1991 economic liberalisation accelerated the growth of services, thus, calling for more sophisticated tools to identify high-growth and underperforming subsectors.

As the government reasons India needs a short-term indicator to measure the growth of services sector to take suitable measures and steer the growth path; questions appear to be far more than the answers as the policy makers seek to juggle around numbers.

The index can support state-level policy formulation if disaggregated data become available, helping identify regional disparities in services growth and enabling targeted infrastructure and skill-development initiatives.

The ISP represents an important institutional reform but its usefulness will ultimately depend on the robustness of methodology, the quality of administrative data and its ability to capture the informal and digital segments of the services sector, and minimising dependence on proxies through improved service-sector price indices.

International experience

Countries have adopted different approaches to developing their services indices depending on data availability, institutional capacity, and economic structure.

Many Organisation of Economic Cooperation and Development (OECD) countries have made significant efforts to obtain a more accurate view of short-term economic phenomena in their services sectors. Some have developed more detailed statistics for services and enhanced the quality of existing series.

Within Asia, Japan has one of the most mature and stable service activity indices, measuring the volume of activity rather than prices and compiled monthly by the Ministry of Economy, Trade and Industry (METI); China rapidly improved its services statistics through a comprehensive monthly production index and extensive use of administrative data, compiled by National Bureau of Statistics; South Korea integrated service indices closely with industrial production statistics and macroeconomic analysis, compiled by KOSTAT; and Singapore emphasises highly granular, digitally driven service statistics instead of a single composite index.

China, Japan, South Korea, and the European Union have dedicated production-based services indices. India is on the same page with its proposed ISP.

Eurostat coordinates monthly publication of the Services Production Index under the European Business Statistics Regulation.

In the U.S., the services sector is monitored through a combination of official indicators produced by the U.S. Census Bureau, Bureau of Economic Analysis, Bureau of Labor Statistics, and the Federal Reserve System.

Way forward

Integrating multiple administrative data sources and coordination among statistical bodies, regulators, and fiscal authorities will improve data quality and timeliness as well as enhance the credibility and policy relevance of India’s macroeconomic statistics.

This becomes all the more important given that the services sector is receiving strong policy support under the Union Budget 2026–27 to drive coordinated reforms and achieve a 10% global share in services exports by 2047.

Image used for representational purposes.
| Photo Credit: Getty Images/iStockphoto