Application of the Double-Deflation Procedure in India’s National Accounts: Implications and Some Methodological Aspects

The application of the double-deflation procedure in preparing a country’s national accounts is highly desirable and has been recommended by SNA, 2008. Several countries, even some emerging market economies, are applying the doubledeflation method. Among G20 countries, India is among the few that use the single-deflation procedure. The estimates presented in the paper show that the use of the single-deflation procedure in India’s national accounts has resulted in a significant underestimation of the manufacturing GVA (gross value added) growth rate and created a false impression of stagnancy in the manufacturing share of GDP. The estimates indicate that the manufacturing share in India’s GDP rose significantly between 2003-04 and 2018-19. Additionally, the estimates point to a possibility that, due to the use of the single deflation, the GDP growth rate of the Indian economy during the second half of the 2000s and the first half of the 2010s has been underestimated by about 0.5 to one percentage point per year, on average. However, one cannot be sure and this is hard to claim with sufficient confidence. The paper discusses some methodological issues and challenges that need to be considered and suitably addressed to bring into use the double-deflation procedure in India’s national accounts.