Rebasing Reality Resets India’s Growth and Inflation Narrative

After a gap of more than a decade, MoSPI released growth and inflation series with an updated base year along with methodological changes. Economic narrative is quite different when one parses through the updated growth and inflation series. For instance, manufacturing growth has done far better when absolute level of nominal GDP is lower. Core inflation is lower in the new series which has implications for monetary policy. More importantly, the methodological changes imply that data should be far less volatile and more representative of underlying economic trends and thus act as a better guide for policy decisions.

First up, the new series shows India’s nominal GDP was actually ₹261 trillion in 2022-23 instead of ₹269 trillion reported in old series. In 2024-25, nominal GDP is now estimated at ₹345 trillion instead of ₹357 trillion thus implying that both fiscal deficit and debt to GDP are higher than reported earlier. Even during previous base year revision (2011-12), nominal GDP was revised lower by around 2%. 

The downward revision in nominal GDP is explained by personal consumption from expenditure side and services sector (informal enterprises) from supply side. Rather than waiting for the base year to correct this anomaly, MoSPI will be conducting Annual Survey of Unincorporated Sector Enterprises (ASUSE) which would give an accurate picture of informal sector instead of benchmark approach in the old series. Since this will be an annual exercise, quarterly data may continue to have this bias

Second, new growth series shows a lower but less volatile growth picture. As per the new series, GDP growth averaged 7.3% between 2023-24 and 2025-26 as against 7.7% in the old series. Quarterly data shows that volatility is far lower in the new series with lower bound of 6.6% in September 2024 as against 5.6% in the old series. Even in this financial year, the new series reported lower growth in June but the two series started to converge thereafter. Hence, the lower bound for growth which was seen below 6% is now around 6.5% and could be considered threshold level at which policy makers could be seen to be intervening, inflation permitting. 

Third, manufacturing sector has reported a much better picture in new series with growth of 11.2% since 2023-24 as against 8% in the old series. This is accompanied with methodological change with use of double deflation method to estimate manufacturing GVA instead of single deflation. This is explained by quantum leap seen in electronics, defence, semi-conductors and renewables sectors among others. It goes to show that our manufacturing incentives are working. At the same time, services sector has grown at a lower rate in the new series (8% versus 8.4% in the old series) driven by under-performance of informal sector. 

On the expenditure side, personal consumption has been weaker than reported earlier. During 2024-25, personal consumption increased by only 5.8% as per new series as against a rebound to 7.2% in the old series. Notably, in 2023-24 personal consumption growth is similar in both the series. More recently, both the series now show pick-up in consumption post the reduction in GST. Given that new series will use high frequency indicators to estimate GDP, data should be more reflective of underlying economic trends and thus give credence to decision making.

Alongside, GDP, the CPI series too has seen substantive changes in terms of methodology and coverage. First, the weight of food in new series has fallen to 36.8% versus 45.9%. While it was expected to come down, the shift of food services (restaurants) to core services has driven an even bigger impact. A lower weight of food inflation is positive given that food inflation has averaged 7.1% over the last three years which is higher than headline CPI of 5.6%. 

Even as the weight of food basket has come down, the trajectory has seen a change. While the old series reported food prices were falling by 1.3% during April-December 2025 led by vegetables, the new series shows that food prices are in fact rising by 2.8% in the last two months because of acceleration seen in meat, fish, eggs and fruits among others. While food prices would have risen anyways because of base effect, there is a distinct change in pace. Given backdrop of rising fertiliser prices and prospects of El Nino conditions, food inflation could be higher than envisaged in the old series. A lower weight of food basket is a positive.

Core inflation too has seen changes with most prominent being in case of housing index which now excludes employer-provided housing and focuses entirely on rental housing. While housing inflation was expected to see an increase, rental inflation has remained benign at 2.1% in the new series which can be explained by change in coverage, methodology and inclusion of rural housing. Another important change in the new series is with respect to personal care and effects wherein gold and silver have been replaced with jewellery made out of the two precious metals. This is again showing much lower pass-through than before. Hence, core inflation which was at a high of 4.6% in December 2025 fell to 3.4% in the new series. Even after excluding jewellery items, core inflation has fallen to 1.9% as against 2.3% in the old series. Hence, whichever way we look at it, core inflation in new series is lower than before.

Policy Signals
What do the two series imply for monetary policy?  

First, a lower nominal GDP implies debt to GDP is now higher which implies fiscal policy is not as conducive for growth as earlier unless nominal growth is higher. Hence, this opens up room for monetary policy to take the mantle. Second, lower core inflation in the new series again reinforces the narrative of lower for longer given that historically headline inflation is seen gravitating towards core. Third, methodological changes and improved coverage imply incoming data (growth) is unlikely to see as large a revision as was the case earlier. It should also be representative of underlying economic trends. Hence, it should aid in decision making.

But the current Iran conflict has muddled the outlook. The weight of energy items has gone up in consumption basket (6.8% from 3.6% in old series) when oil prices have seen a sharp increase. A $10/barrel increase in oil prices has the ability to push headline inflation higher by 50-60 bps in case of full pass-through and thus nudging inflation above 4.5% in 2026-27 if oil prices settle around $85/barrel. Even growth outlook would change in particular for manufacturing wherein higher input costs would impact GVA under double deflation methodology.

Once the war narrative and oil prices settle down and pass-through is done away with, the focal point of monetary policy would again shift to growth and inflation. Here the new series for growth and inflation would be instrumental in guiding policy making given lower volatility, better representation, changed threshold level of growth and lower trajectory of core inflation.