Why in News?
The Ministry of Statistics and Programme Implementation (MoSPI) will launch the Index of Services Production (ISP).
What is the background?
- Transformation of Indian economy – India's economy has undergone a structural transformation over the past three decades, with the services sector emerging as its largest contributor.
- Increased Contribution of Service sector – Today, services account for over 50% of India's Gross Value Added (GVA), making them the primary driver of economic growth, employment, investment, and exports.
- Concerns – Despite this dominant role, India has lacked a comprehensive high-frequency indicator to measure monthly changes in services sector output, unlike the Index of Industrial Production (IIP) for manufacturing and industry.
- Idea of ISP – The Ministry of Statistics and Programme Implementation (MoSPI) will launch the Index of Services Production (ISP) With base year 2024–25.
- Initially released as trial indices from July 2026, the ISP represents a major reform in India's statistical architecture and aligns the country with international best practices in economic measurement.
- Need for the ISP – The services sector has become the backbone of the Indian economy through rapid expansion in banking, telecommunications, trade, transport, hospitality, information technology, real estate, and professional services.
- However, policymakers have traditionally relied on quarterly GDP estimates and indirect indicators to assess its performance.
- Limitation of existing data – The absence of a monthly services output indicator created several limitations:
- Lack of timely assessment of economic activity.
- Difficulty in identifying sector-specific slowdowns.
- Inadequate support for short-term monetary and fiscal policy decisions.
- Limited data for business cycle analysis and economic forecasting.
- The ISP seeks to fill this critical statistical gap by providing a monthly measure of real output growth in the formal services sector, similar to the role played by the IIP in the industrial sector.
What is the Index of Services Production?
- Index of Services Production (ISP) – It is a short-term volume index that measures changes in the real output produced by service industries relative to a specified base year (2024–25).
- Unlike nominal turnover, the ISP measures real production after removing the effect of price changes, thereby reflecting actual changes in service output over time.
- Primary objectives:
- To complement the Index of Industrial Production (IIP).
- To strengthen India's short-term macroeconomic indicators.
- To provide high-frequency information on the services sector.
- To support evidence-based policymaking and economic analysis.
- Institutional Framework – Recognising the complexity of measuring services output, MoSPI constituted a Technical Advisory Committee (TAC) in May 2025 under the chairpersonship of Debjani Ghosh, Distinguished Fellow, and NITI Aayog.
What are the sectors included and excluded in ISP?
- Coverage of the ISP – The ISP primarily covers the formal services sector, using administrative and GST-based data.
- Major sectors included:
- Wholesale and retail trade
- Repair and maintenance services
- Road, rail, water and air transport
- Warehousing and logistics
- Banking
- Insurance
- Telecommunications
- Hotels and restaurants
- Real estate
- Information technology and computer services
- Professional, scientific and technical services
- Administrative and support services
- Arts, entertainment and recreation
- Sectors to be Included Later
- Health services (excluding government)
- Education services (excluding government)
- They will be incorporated after sufficient data become available through the Annual Survey of Incorporated Services Sector Enterprises (ASISSE).
- Services Excluded from the ISP – Certain services are excluded because they are predominantly non-market activities, government services, or difficult to measure through market transactions.
- These include following sector:
- Public administration and defence
- Government health and education
- Central banking activities
- Social work without accommodation
- Membership organisations
- Personal services
- Household services
- Extraterritorial organisations
- Gambling and betting activities
What are the data sources used in ISP?
- Administrative Data – Used for sectors where reliable operational statistics already exist, Air transport, Railways, Banking and Insurance.
- Goods and Services Tax (GST) Data – GST outward supply data from GSTR-1 forms the backbone of ISP for most service industries.
- Coverage includes, trade, hospitality, telecommunications, information technology, professional services, real estate, logistics, administrative services and entertainment.
- Importantly, MOSPI uses aggregated service accounting code (sac)-wise data, ensuring confidentiality of individual taxpayers.
- Annual Survey of Incorporated Services Sector Enterprises (ASISSE) – ASISSE will provide benchmark estimates for sectors that are largely GST-exempt, particularly, Health and Education.
What are the benefits of the ISP?
- Better Macroeconomic Monitoring – It provides timely assessment of service sector performance between quarterly GDP releases.
- Improved Policy Formulation – Government and RBI can respond more quickly to sector-specific economic changes.
- Stronger National Accounts – ISP will improve estimation of quarterly and annual GDP by supplying robust high-frequency indicators.
- Enhanced Business Cycle Analysis – Economists and researchers can identify cyclical turning points earlier.
- Better Investment Decisions – Businesses gain access to reliable monthly information on sectoral trends.
- International Comparability – The ISP aligns India with advanced statistical systems followed in many developed economies.
What are the challenges ahead?
- Coverage is restricted largely to the formal sector.
- Informal service activities remain outside the index.
- Dependence on GST data may be affected by compliance behaviour.
- Limited availability of Service Producer Price Indices reduces methodological precision.
- Health and education sectors will initially remain partially uncovered.
- Continuous refinement of SAC-NIC mapping will be necessary.
- These issues are expected to improve gradually as administrative databases become more comprehensive.
What lies ahead?
- The Index of Services Production (ISP) represents one of the most important statistical reforms in recent years.
- By providing a monthly measure of real services sector output, it complements the Index of Industrial Production and fills a long-standing gap in India's macroeconomic data framework.
- Leveraging GST-based administrative data, modern statistical methods, and internationally accepted practices, the ISP will significantly strengthen economic surveillance, policy formulation, forecasting, and national accounts compilation.
- As India's economy becomes increasingly service-driven, the ISP is poised to become an indispensable tool for policymakers, researchers, businesses, and investors, contributing to more informed and evidence-based governance.
References
1.The Hindu| ISP
2.PIB| ISP
