Down gradation Resulted In Rs 42 Lakh Crore Cut In Nominal GDP Between FY23-26

“Indeed, there is a high possibility that even GDP numbers FY12 onwards may also undergo significant cuts. Adding to the cumulative cutback of Rs 42 lakh crore for FY23-FY26, when the recast of back years for 2022-23 series is made available eventually, the cumulative haircut during the FY16-FY26 decade could be close to Rs 100 lakh crore,” finds Systematix.

This downgrade for FY23-FY26 is across all major domestic demand aggregating—household consumption, government spending, and fixed capital formation—suggesting a systematic revision rather than isolated adjustments.

“The NSO has not explicitly explained the drivers behind the large, consistent downgrades in the new series, nor has it published a fully comparable historical series. A close reading of the NSO’s documentation on the base revision, however, indicates that informal-sector data has now been incorporated into the 2022–23 series using the Annual Survey of Unincorporated Sector Enterprises (ASUSE) and other surveys that restarted after a long gap,” said the report.

The GVA of the unorganised sector in the 2011–12 series relied on static, fixed ratios extrapolated from formal-sector growth. Under the 2011–12 series, initial GVA estimates for unorganized enterprises were built by combining per-worker productivity. But survey-based tracking of the informal economy was discontinued after 2012–13. For every year since, unorganized-sector growth was estimated indirectly — by extrapolating the 2011–12 benchmark using formal-sector proxies.

The series never captured how demonetisation, GST-related disruptions, global protectionism, and the pandemic lockdown affected the informal economy in real time. Given that the unincorporated enterprises contributed a substantial 62% of GVA in their respective sectors - 26% in manufacturing, 86% in trade and 72% in other services- their exclusion created a structural upward bias in GDP estimation, as measured activity shifted in favour of the organized sector at the expense of a shrinking unorganized sector.

When the withheld 2017–18 PLFS data eventually surfaced, it revealed unemployment at 6.1% — a 45-year high. The response was to reclassify a significant number of disguised-unemployed persons as productively employed within the PLFS framework itself, distorting the unemployment situation, wage estimates and value-addition calculations.

“The downscaling of nominal GDP in the 2022–23 series relative to the earlier 2011–12 series is best understood as the cumulative effect of long-accumulated distortions and overstated economic performance — not a one-off statistical quirk. It also carries a troubling implication: a fully comparable back-cast series may be unattainable, as informal-sector data was not collected for an extended period. Until missing data and linking factors are released, the practical approach is to use the 2011-12 nominal GDP series alongside the new 2022-23 series, with interim years relying on interpolation,” opines Systematix.

Viewed over the long term, average nominal GDP growth has decelerated secularly to 9%— the lowest since FY1972 outside of COVID-19 shock, and a sharp fall from the recent peak of 16% in FY12. Applying an average inflation rate of roughly 5%, the underlying structural real growth rate is realistically closer to 4–5%.