Measuring Manufacturing Growth Afresh: Three Questions, Pg11

Key Highlights:

• Concerns have been raised regarding the reliability and plausibility of India's manufacturing growth data, particularly within the new GDP series.
• The article questions the manufacturing Gross Value Added (GVA) deflator showing negative growth for nine consecutive quarters between 2023 and 2025.
• A significant divergence exists between real manufacturing GVA growth and the Index of Industrial Production (IIP), with GVA growth almost double that of IIP.
• The correlation between IIP and real GVA in manufacturing has sharply weakened since the 2011-12 methodology changes.
• These data issues hinder the accurate assessment of government initiatives like Make in India and the Production-Linked Incentive (PLI) Scheme.

Detailed Insights:

• The Ministry of Statistics and Programme Implementation (MoSPI) made efforts to address data problems in the previous manufacturing series, leading to the new GDP series.
• The negative growth of the manufacturing GVA deflator is puzzling as there were no signs of economy-wide deflation during the period, unlike the core CPI index.
• The divergence between real GVA and IIP is substantial, with GVA exceeding IIP by 15 percentage points in 2025-26, despite the informal sector's performance being proxied by formal sector data.
• Real GVA can only grow faster than output volumes if productivity improves, meaning firms become more efficient in using intermediate inputs.
• The weakened correlation between IIP and GVA since 2011-12, and further exacerbated in the new series, raises questions about the consistency of measurement.
• Reliable manufacturing data is crucial for evaluating India's economic performance and the effectiveness of policies aimed at countering the "China Squeeze" and boosting domestic production.

Key Concepts Involved:

• Gross Value Added (GVA): A measure of the value of goods and services produced in an area, industry, or sector of an economy.
• Index of Industrial Production (IIP): An index that measures the changes in the volume of production in industrial sectors like manufacturing, mining, and electricity.
• Make in India: A government initiative launched in 2014 to encourage companies to manufacture their products in India and incentivize investment.
• Production-Linked Incentive (PLI) Scheme: A scheme introduced by the Indian government to offer incentives to companies for enhancing domestic manufacturing.
• Ministry of Statistics and Programme Implementation (MoSPI): The nodal agency for planned development of the statistical system and monitoring of program implementation in India.