IT Services Poised to Dominate India's New Output Index, Set to Define National Service Sector Strength

IT Services Poised to Dominate India's New Output Index, Set to Define National Service Sector Strength​

The Technical Advisory Committee on the Index of Services Production has released key findings regarding a vital new metric set to track monthly services output in India. Information and computer-related services are projected to hold the largest weight in the proposed index, reflecting the sector's critical contribution to the economy. This move promises to provide a standardized, high-frequency measure of service production, mirroring existing measures like the Index of Industrial Production (IIP).

IT Services Hold Highest Weight in Proposed Services Output Gauge​

According to the report, information and computer-related services are slated to account for 21.91 percent of the new services output gauge. This dominance within the sector is expected as the index comes into effect. Within this domain, computer programming, consultancy, and related activities will be the key driver, projected at a 20.51 percent share in the overall index. Computing infrastructure, data processing, hosting, and other information services are estimated to account for 1.41 percent.

Retail Trade and Other Services Set Compositional Standards​

Retail trade is slated as the second-largest component of the index, assigned a weight of 18.49 percent. Administrative and support services will constitute the third largest category with a 14.39 percent weighting. Banking services are set at 10.74 percent. Other significant components include road transport at 7.49 percent, wholesale trade at 6.41 percent, and accommodation and food services contributing 4.17 percent to the calculation.

Methodology and Data Sourcing for the New Index​

The proposed index will utilize the IIP methodology and is scheduled to use 2024-25 as its base year. A major component of this new measurement will be based on GST data regarding outward supplies. The committee views GST data as a suitable proxy for services production, particularly since services are inherently consumed as they are created.

Capturing the Formal Sector: Role of GST Data​

The index is designed to largely capture the formal services sector. This focus is due to the reliance on GST and Annual Survey of Incorporated Services Sector Enterprises-based data, which cover registered or incorporated enterprises. The scope of coverage includes various activities such as wholesale trade, retail trade, road transport, real estate, telecommunications, and professional services.

Scope and Limitations of Initial Framework​

While the index aims for comprehensive measurement, some elements have been excluded from the initial framework due to a lack of readily available suitable data. These exclusions include public administration and defence, ownership of dwellings, certain financial services, personal services, and membership organisations. Together, these excluded areas account for nearly one-third of total services output.

Future Expansion and Key Transport Sector Inclusion​

Administrative data covering railways, air transport, banking, and insurance will be incorporated into the index. Furthermore, health, residential care, and education are planned to be included later through the ASISSE once suitable data becomes available. The Statistics Ministry had previously announced that the first release of the index is expected in mid-June.