New Delhi: The Ministry of Statistics and Programme Implementation (MOSPI) clarified on Wednesday that a negative inflation in the implicit deflator in manufacturing does not mean that manufacturing prices have fallen, and it is important to distinguish between the price deflators of output and inputs and the implicit Gross Value Added (GVA) deflator.
The explanation came in response to a question: How can the manufacturing sector record a negative inflation in the GVA implicit deflator of “(-)1.5 per cent” in Q1, 2026-27 despite an increase in both manufacturing output and input prices, while the agricultural sector recorded a positive inflation rate of 3.9 per cent?
The ministry said that under the double-deflation approach, output and intermediate consumption of the manufacturing sector are deflated separately and real GVA is obtained as real output minus real intermediate consumption. Therefore, when input prices increase faster than output prices, the relative price movement can result in nominal GVA growing more slowly than real GVA. Consequently, the implicit GVA deflator, which is derived by comparing nominal GVA with real GVA, can show negative inflation even though both output and input prices are rising.
Importantly, a negative GVA deflator does not mechanically imply lower real growth. Real GVA growth depends on the relative movements in real output and real intermediate consumption, the statement pointed out.
In Q1, 2026-27, manufacturing GVA is compiled using the double-deflation approach, under which output and intermediate consumption are separately deflated. During this period, input prices increased faster relative to output prices. As a result, nominal GVA growth for this sector was relatively lower at 7.7 per cent, while real GVA growth was 9.2 per cent. The resulting difference between nominal and real GVA growth produced a negative implicit GVA deflator of 1.5 per cent. For example, some of the activities where the growth of input prices was found to be more than that of output prices are the manufacturing of textiles and cotton ginning; basic metals; rubber and plastic products, etc.
To add further, research papers by the OECD highlight that countries using double deflation frequently experience volatile or negative implicit deflators in manufacturing during global energy and raw material shocks. Advanced economies that depend heavily on imported raw materials regularly experience negative manufacturing deflators when international supply chains fluctuate.
Thus, this does not imply that manufacturing output prices declined. Rather, it reflects the relative movement of output and input prices in the double-deflation framework, the ministry contended.
In contrast, at the quarterly level, Agriculture GVA is compiled at constant price first using the production estimates. Current Price estimates of Agriculture GVA are then derived by inflating the Constant Price estimates using the relevant Producer Price Index.
During Q1, 2026-27, the output Producer Price Index for Agriculture, Forestry and Fishing group rose by approximately 5 per cent. Since the output prices rose and agricultural nominal GVA is heavily driven by these output prices, its implied inflation remained positive at 3.9 per cent, the statement added.
(IANS)
