How do double deflation and supply use tables improve data?

In the new GDP series, double deflation and supply use tables serve as critical methodological improvements to enhance the accuracy and reliability of economic data.

Double Deflation

Double deflation improves data by separately adjusting the prices of inputs and outputs for inflation.

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Move from Single Deflator: Previously, the data relied on a single deflator, which only adjusted for inflation in the final output.

Accurate Value Addition: By deflating inputs and outputs independently, the system can more accurately calculate the real value addition in the economy.

Identifying Inflation Sources: This method allows economists to identify whether inflation is higher in the production inputs or the final outputs, providing a clearer picture of the actual economic situation and eliminating discrepancies.

Global Alignment: Implementing this method aligns India’s data with IMF and UN standards, which advocate for double deflation to ensure high-quality national accounts.

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Supply and Use Tables (SUT)

Supply and Use Tables improve data by creating a consistent framework to track how goods and services move through the economy.

Ensuring Consistency: The SUT framework ensures that the total supply of goods and services (including production and imports) matches their use (including consumption, investment, and exports).

Bridging Calculation Gaps: It helps reduce the gap between different GDP estimation methods, specifically the production approach and the expenditure approach.

Eliminating Discrepancies: By matching supply and use data at a granular level, these tables help identify and resolve data mismatches and shortfalls that occur when production data does not align with consumption data.

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Distinguishing Intermediate Goods: SUTs provide a more precise way to separate intermediate goods from final goods. This prevents the accidental "double-counting" of intermediate products, which would otherwise lead to an inflated and inaccurate GDP figure.

By incorporating these two methods, the new series provides more accurate GDP estimates, improves statistical credibility on a global stage, and allows for better policy-making based on a precise understanding of the economy's structure.