What Is This New Index Anyway?
Starting July 14, 2026, the Ministry of Statistics and Programme Implementation (MoSPI) will begin releasing the Index of Services Production (ISP). Think of it as the services equivalent of the well-known Index of Industrial Production (IIP). For years,
policymakers have used the IIP to track short-term momentum in the manufacturing sector. The ISP aims to do the same for services, a sector that now contributes over half of India's Gross Value Added (GVA). It's designed to be a high-frequency indicator, giving a monthly snapshot of the sector's health with a lag of about 60 days. The first trial indices, covering data from April 2026, will give us our first glimpse into this new way of measuring the economy.
The Data Gap It Aims to Fill
Until now, the most common high-frequency measure for services has been the Purchasing Managers' Index (PMI). However, the PMI is a survey-based sentiment index; it captures how optimistic business managers feel about activity, not the actual volume of services produced. The ISP, on the other hand, is designed to measure real output. It will draw heavily from administrative data sources, particularly aggregated Goods and Services Tax (GST) returns, which provide a proxy for production. For sectors where GST data isn't suitable, like railways or banking, it will use data from regulatory bodies like the RBI and DGCA. This move represents a major step toward filling a critical data gap and reducing reliance on sentiment-based indicators for policymaking.
Verification Point 1: What’s In and What’s Out
Before using the index, the first thing to check is its scope. The initial version of the ISP will cover a broad range of formal service industries, including trade, transport, telecom, real estate, banking, and entertainment. Information and computer-related services will have the largest weight, at nearly 22%, followed by retail trade. However, some crucial areas are initially excluded. The ISP will not cover the vast informal services sector. It also leaves out key social services like health and education for now, as the government waits for data from a new survey, the Annual Survey of Incorporated Services Sector Enterprises (ASISSE). This means the index, while powerful, will only reflect the formal, organised part of the services economy.
Verification Point 2: The Methodology Under the Hood
An index is only as good as its methodology. The expert committee has recommended using 2024-25 as the base year and adopting the Laspeyres volume index formula, which is a standard international practice. For most sectors, the index will use GST outward supplies data, adjusted for price changes using various inflation deflators, to estimate real output. This approach is a unique blend of data sources tailored for India. However, new indices can be volatile at first and are often subject to revision. The government plans to release the ISP on a trial basis initially to gather feedback and validate the methodology. Users should be cautious and look for trends over several months rather than reacting to a single data point.
Verification Point 3: How It Compares to the PMI
The ISP will not replace the Services PMI; it will complement it. It's crucial to understand the difference. The PMI is a diffusion index, indicating the breadth of change (how many companies are seeing activity increase or decrease). The ISP is a production index, designed to measure the magnitude of change in output volume. For example, the PMI could be high because many companies are seeing slight growth, while the ISP might be low if a few large companies are experiencing a significant contraction. Analysts will need to learn how to read these two indicators together. A rising PMI and a rising ISP would signal strong, broad-based growth. A divergence between the two could signal a more complex economic picture that requires deeper investigation.
