Measuring manufacturing growth afresh: Three questions

Opinion Measuring manufacturing expansion afresh: Three questions Difficulties in manufacturing sector data under the previous series were widely recognised, and MoSPI created strenuous efforts to address them.

Key points

• 5 min readAug 24, 2026 06: 20 AM IST First published on: Aug 24, 2026 at 06: 20 AM IST.
• In the new numbers, the manufacturing GVA deflator exhibits negative expansion (falling rate levels) for nine consecutive quarters between 2023 and 2025 (Figure 1).
• So, the third question is: Why has the correlation between IIP manufacturing and real GVA in manufacturing weakened so sharply, compared to the 2005-2012 period?
• The divergence between real Gross Value-Added (GVA) and the Index of Industrial Production (IIP).
• Challenges in manufacturing sector data under the previous series were widely recognised and the Ministry of Statistics and Planning Implementation (MoSPI) produced strenuous efforts to address them.

Not just on the border but additionally in the economy, whether and how India has stood up to China is a critical question that reliable data will assist us answer. (File Photo). Written by: Abhishek Anand, Josh Felman, Arvind Subramanian.

For context, the Chinese manufacturing export juggernaut once again moves menacingly throughout the world, threatening lower-skill manufacturing in poorer countries (the so-called China Squeeze). After it up with the production-linked incentive (PLI) scheme a number of years afterwards, the administration has set major ambitions for the manufacturing sector, starting with the flagship Produce in India programme in 2014 and. The latter was, in part, a response to the opportunities opened up by the China-pus-one but additionally to cope with the challenges of aggressive Chinese competition.

But answering the significant question of how Indian manufacturing has performed after these developments and actions requires confidence in the underlying data. That is especially true now since the economy is sending conflicting signals and understanding the performance of the manufacturing sector may lift some of the confusion.

Challenges in manufacturing sector data under the previous series were widely recognised and the Ministry of Statistics and Planning Implementation (MoSPI) produced strenuous efforts to address them. When the new GDP series was confirmed, the Chief Economic Advisor and Secretary MoSPI stressed that the numbers were based on a new methodology, one that solved the measurement difficulties that had bedeviled the old series, including in manufacturing. Since MoSPI has not yet issued the detailed standard document explaining the new calculations, we must examine the numbers themselves to assess their plausibility. When we do so, three questions arise regarding the manufacturing sector, the focus of much debate in the old series.

Question 1: The manufacturing cost deflator. In the new numbers, the manufacturing GVA deflator exhibits negative expansion (falling rate levels) for nine consecutive quarters between 2023 and 2025 (Figure 1). As there were no signs of deflation in the economy during this period, the core CPI index indicates, these numbers are tough to understand. It is true that the wholesale cost index (WPI) was negative for some of this time – but not for nine consecutive quarters; and, in any case, the GVA deflator should not move in line with the WPI. It is overly driven by input costs.

So, what explains this negative expansion of the manufacturing GVA deflator?

Question 2. The divergence between real Gross Value-Added (GVA) and the Index of Industrial Production (IIP). Figure 2 plots the two series for manufacturing in level terms. The difference is substantial. In 2025-26, the level of real GVA exceeded IIP by no less than 15 percentage points, implying that the annual average real expansion of manufacturing between 2022-23 and 2025-26 as measured by GVA is concerning twice that measured by the IIP (11 per cent versus 6 per cent).

To be sure, the two series have somewhat different definitions. While this sector is excluded from the IIP, for example, real GVA includes the informal sector. So, if the informal sector had grown much more rapidly than the formal sector, GVA could outpace IIP. Since for the most recent two years, informal sector performance has been proxied by formal sector data, but this explanation is mechanically impossible. So, even if the informal sector has been booming (which seems implausible), this could not explain the divergence.

It is additionally true that the IIP measures output volumes, rather than value went on. And there is a widely held perception that real GVA can grow faster than real output when input rates fall. But this perception is misguided or just plain wrong since real GVA is calculated at constant – not changing – costs. In fact, real value-added can grow faster than output volumes only if productivity improves, that is if firms become more efficient in using intermediate inputs.

So, the second question is: why is real GVA manufacturing expansion almost twice that of IIP manufacturing expansion?

Question 3. Correlation between the expansion rates of real GVA and IIP in manufacturing. As one would expect and as Figure 3 demonstrates, before the 2011-12 methodology changes, GVA and IIP moved closely together. (The correlation was 0.8.) But afterwards they diverged and that divergence has, if anything, been exacerbated in the new series. Note that since September 2022 the two series move particularly differently and the real GVA series bounces around a lot while the IIP series is fairly stable (Figure 3, circled segment).

None of these three problems is dispositive concerning the quality of the new series. But having plausible explanations for them will not only engender confidence in the new GDP figures but additionally assist assess the state of manufacturing in India and the impact of recent administration actions to revive it. Not just on the border but additionally in the economy, whether and how India has stood up to China is a critical question that reliable data will assist us answer.

Anand is affiliated to the Madras Institute for Development Studies, Felman is with JH Consulting, and Subramanian is former chief economic advisor to the Administration of India. © The Indian Express Pvt Ltd.

For now, measuring manufacturing growth afresh: Three questions remains the part of the story worth watching, and further updates are likely as more details are confirmed.