Context
NITI Aayog Vice-Chairperson has defended double deflation as practical and methodologically possible. India’s updated Gross Domestic Product (GDP) series uses 2022–23 as the base year and separately adjusts output and input prices while calculating real GVA.
Explanation
- Gross Value Added (GVA) equals output minus intermediate consumption or inputs.
- Nominal GVA uses current prices; Real GVA removes price changes and reflects actual production volumes.
- Deflation means converting current-price values into base-year prices by using a price index.
- Single deflation means removing price changes using only the output price index, whereas double deflation means separately removing price changes from goods produced and inputs used.
- Example: In the base year, a bakery produces bread worth ₹100 using flour worth ₹50, giving a GVA of ₹50 (₹100-₹50). Next year, production remains unchanged, but the flour price falls to ₹40 while the bread price remains unchanged. Nominal GVA therefore rises to ₹60 (₹100-₹40). Single deflation uses only the bread-price index of 1 and wrongly shows real GVA as ₹60. Double deflation separately adjusts output and input: ₹100 ÷ 1 = ₹100 (final bread price – same) and ₹40 ÷ 0.8 = ₹50 (Flour price reduced). Real GVA therefore remains ₹50 (₹100-₹50), correctly showing zero real growth.
- Price changes are removed to measure the actual change in production quantity, rather than an increase or decrease caused merely by inflation or deflation.
- This globally accepted approach removes both producer and consumer inflation effects, yielding an accurate Real GDP.
La Excellence IAS Academy, the best IAS coaching in Hyderabad, known for delivering quality content and conceptual clarity for UPSC 2026 preparation.
FOLLOW US ON:
◉ YouTube : https://www.youtube.com/@CivilsPrepTeam
◉ Facebook: https://www.facebook.com/LaExcellenceIAS
◉ Instagram: https://www.instagram.com/laexcellenceiasacademy/
GET IN TOUCH:
Contact us at info@laex.in, https://laex.in/contact-us/
or Call us @ +91 9052 29 2929, +91 9052 99 2929, +91 9154 24 2140
OUR BRANCHES:
Head Office: H No: 1-10-225A, Beside AEVA Fertility Center, Ashok Nagar Extension, VV Giri Nagar, Ashok Nagar, Hyderabad, 500020
Madhapur: Flat no: 301, survey no 58-60, Guttala begumpet Madhapur metro pillar: 1524, Rangareddy Hyderabad, Telangana 500081
Bangalore: Plot No: 99, 2nd floor, 80 Feet Road, Beside Poorvika Mobiles, Chandra Layout, Attiguppe, Near Vijaya Nagara, Bengaluru, 560040