The Chinese manufacturing export juggernaut once again moves menacingly across the world, threatening lower-skill manufacturing in poorer countries (the so-called China Squeeze). The government has set major ambitions for the manufacturing sector, starting with the flagship Make in India programme in 2014 and, following it up with the production-linked incentive (PLI) scheme several years later. The latter was, in part, a response to the opportunities opened up by the China-pus-one but also to cope with the challenges of aggressive Chinese competition.
But answering the important question of how Indian manufacturing has performed in the wake of these developments and actions requires confidence in the underlying data. That is especially true now because the economy is sending conflicting signals and understanding the performance of the manufacturing sector may lift some of the confusion.
Problems in manufacturing sector data under the previous series were widely recognised and the Ministry of Statistics and Planning Implementation (MoSPI) made strenuous efforts to address them. When the new GDP series was announced, the Chief Economic Advisor and Secretary MoSPI stressed that the numbers were based on a new methodology, one that solved the measurement problems that had bedeviled the old series, including in manufacturing. Because MoSPI has not yet released the detailed standard document explaining the new calculations, we must examine the numbers themselves to assess their plausibility. When we do so, three questions arise about the manufacturing sector, the focus of much debate in the old series.
Question 1: The manufacturing price deflator. In the new numbers, the manufacturing GVA deflator exhibits negative growth (falling price levels) for nine consecutive quarters between 2023 and 2025 (Figure 1). These numbers are difficult to understand, as there were no signs of deflation in the economy during this period, the core CPI index shows. It is true that the wholesale price index (WPI) was negative for some of this time — but not for nine consecutive quarters; and, in any case, the GVA deflator should not move in line with the WPI, which is overly driven by input prices.
So, what explains this negative growth of the manufacturing GVA deflator?
Question 2. The divergence between real Gross Value-Added (GVA) and the Index of Industrial Production (IIP). Figure 2 plots the two series for manufacturing in level terms. The difference is substantial. In 2025-26, the level of real GVA exceeded IIP by no less than 15 percentage points, implying that the annual average real growth of manufacturing between 2022-23 and 2025-26 as measured by GVA is about twice that measured by the IIP (11 per cent versus 6 per cent).
To be sure, the two series have somewhat different definitions. For example, real GVA includes the informal sector, while this sector is excluded from the IIP. So, if the informal sector had grown much more rapidly than the formal sector, GVA could outpace IIP. But this explanation is mechanically impossible, since for the most recent two years, informal sector performance has been proxied by formal sector data. So, even if the informal sector has been booming (which seems implausible), this could not explain the divergence.
It is also true that the IIP measures output volumes, rather than value added. And there is a widely held perception that real GVA can grow faster than real output when input prices fall. But this perception is misguided or just plain wrong because real GVA is calculated at constant — not changing — prices. In fact, real value-added can grow faster than output volumes only if productivity improves, that is if firms become more efficient in using intermediate inputs.
So, the second question is: why is real GVA manufacturing growth almost twice that of IIP manufacturing growth?
Question 3. Correlation between the growth rates of real GVA and IIP in manufacturing. Before the 2011-12 methodology changes, GVA and IIP moved closely together, as one would expect and as Figure 3 shows. (The correlation was 0.8.) But afterwards they diverged and that divergence has, if anything, been exacerbated in the new series. Note that since September 2022 the two series move very differently and the real GVA series bounces around a lot while the IIP series is fairly stable (Figure 3, circled segment).
So, the third question is: Why has the correlation between IIP manufacturing and real GVA in manufacturing weakened so sharply, compared to the 2005-2012 period?
None of these three issues is dispositive about the quality of the new series. But having plausible explanations for them will not only engender confidence in the new GDP figures but also help assess the state of manufacturing in India and the impact of recent government actions to revive it. Not just on the border but also in the economy, whether and how India has stood up to China is a critical question that reliable data will help us answer.
Anand is affiliated to the Madras Institute for Development Studies, Felman is with JH Consulting, and Subramanian is former chief economic advisor to the Government of India
Not just on the border but also in the economy, whether and how India has stood up to China is a critical question that reliable data will help us answer. (File Photo) 
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