Discuss the rationale behind India's new Index of Services Production and examine the implications of its heavy reliance on GST data for measuring informal sector activity.

Services contribute over half of India's GVA, yet unlike industry — tracked monthly by the Index of Industrial Production — the sector had no short-term output indicator [2]. The Index of Services Production (ISP), a monthly MoSPI index with base year 2024-25, fills this gap, but its GST-driven design confines it to the formal economy.

Rationale for the ISP

• Closing a structural data gap: no index existed to capture short-term movements in services despite their dominance in GDP and employment [2].
• Policy timeliness: ISP gives high-frequency information on services performance, strengthening monitoring of economic activity and evidence-based decisions; it improves GDP/GVA nowcasting and business-cycle analysis [1].
• Wide coverage: wholesale and retail trade, transport, banking, insurance, telecom, hotels and restaurants, real estate, professional and technical services — designed to cover at least 70% of services at the 2-digit NIC level [1][2].
• Consultative build-up: a Technical Advisory Committee constituted in May 2025 deliberated over a year, producing a published approach paper and a phased trial release before regular publication [2][3].

Implications of GST-based compilation

• Positive: aggregated GST returns act as a ready, near-real-time barometer of economic activity, cutting cost, lag and respondent burden versus fresh surveys [2]; where GST data is thin, MoSPI supplements it with administrative data and the Annual Survey of Incorporated Services Sector Enterprises [3].
• Coverage bias: registration is not mandatory below the statutory turnover threshold (₹20 lakh; ₹10 lakh in certain special-category States), so small traders, transporters and personal-service providers fall outside the frame.
• Interpretive risk: formalisation or improved tax compliance can raise the index without real output growth, and shocks to informal services may go unregistered — the index is explicitly a formal-sector measure [2].

ISP is a welcome step toward a modern, administrative-data-driven statistical system. Its credibility will rest on transparent labelling of coverage limits and on pairing it with survey instruments such as PLFS and enterprise surveys, so that India's headline services indicator eventually reflects the informal majority too.