When district-level economic activity is under-counted, it distorts our understanding of regional development and misguides the allocation of public resources | Photo Credit: MANOJ KUMAR
Every policy, budget, and economic forecast rests on one foundational number — Gross Domestic Product (GDP). But what if that number is wrong? What if we’ve been underestimating the true size of India’s economy for years, especially at the local level? Despite our national obsession with growth, the methods we use to calculate GDP, particularly at the district level, are outdated, top-heavy, and often blind to ground realities. In this article, we explore how recent evidence from Uttar Pradesh reveals massive discrepancies between reported and actual economic output and argue that it’s time India rethinks how it counts its economy, starting from the grassroots up.
One of the most widely used methods to calculate GDP is the production approach, which estimates GDP by summing the value added at each stage of production across three sectors: primary (agriculture and allied activities), secondary (industry and manufacturing), and tertiary (services). The value contributed by each of these sectors is referred to as Gross Value Added (GVA), and GDP, through this approach, is derived as the sum of these sectoral contributions, adjusted by the net effect of taxes and subsidies on products. In India, the Central Statistics Office (CSO) employs this production approach at the national level.
The allocation of GDP across sectors follows two principal methodologies — the top-down approach and the bottom-up approach.
The secondary and tertiary sectors use the top-down approach, where the computed GDP by the CSO at the national level is apportioned to States and further disaggregated to the district level using available indicators like employment levels, industrial infrastructure, or consumption patterns. However, the indicators used are often inadequate as it assumes that economic activity is proportionally similar across regions based on these indicators, rather than measuring actual output at the local level.
The bottom-up approach is when the data is collected at the district level through surveys and data from businesses, farms, industries, and service providers at the district level. This data is then aggregated at the State level and subsequently consolidated at the national level. This method is employed in agriculture and allied activities within the primary sector.
Addressing the gap
To solve this issue, we need to reverse the top-down approach to a bottom-up approach, where data should be collected beginning from the district level, to the States, and eventually at the national level. In this light, the Uttar Pradesh Government recently piloted a bottom-up methodology in four districts: Kanpur, Gorakhpur, Varanasi, and Meerut. This involved conducting two detailed surveys: the Labour Force Survey (LFS) and the Survey of Unincorporated Sector Enterprises (SUSE). The LFS was used to estimate employment and unemployment rates, while SUSE captured GVA per worker and enterprise across the manufacturing and service sectors.
The findings were startling. In the unincorporated manufacturing sector alone, the apportioned GVA for the four districts, based on the existing top-down method, was estimated at ₹8.8 lakh crore, whereas the district-level survey data revealed an actual GVA of ₹17.6 lakh crore (Chart 1), nearly double the earlier estimate. Meerut, for instance, was found to have a manufacturing GVA of ₹4.82 lakh crore, compared to the apportioned estimate of ₹1.94 lakh crore— a staggering difference of 147.6 per cent (Chart 2). Similar disparities were observed in Varanasi (120.2 per cent higher than previous estimates) and Kanpur (78.8 per cent) (Chart 2). Evidence is definitively conclusive that the estimate of GDP, even at the national and State level, is getting underestimated.
It is important to note that this was only a pilot study conducted over a brief one-month period. Seasonal variations, which can significantly impact economic activity in these sectors, apart from agriculture and construction, were not accounted for. Yet, even this limited exercise exposed massive gaps between actual and estimated figures, underscoring the need for a more robust, data-driven methodology.
These are not just statistical anomalies. Such severe underestimations have serious implications. When district-level economic activity is under-counted, it distorts our understanding of regional development and misguides the allocation of public resources. Worse, it conceals the economic potential of areas that may otherwise deserve more attention and investment.
If India is to realise its aspiration of becoming a $5 trillion economy, and more ambitiously, a $1 trillion economy for Uttar Pradesh, the district-level data must be treated as a strategic asset, as Prime Minister Narendra Modi has noted, “the district as the fulcrum of economic development”. A time-bound national effort is required to roll out this bottom-up approach across all districts.
It will demand investment in statistical capacity, trained enumerators, digital data collection tools, and a robust monitoring framework. But the returns in the form of more accurate economic data, better governance, and inclusive development will be well worth the effort.
Santhosh is Research Assistant, and Seth is Associate Fellow, at Pahle India Foundation; Kumar is former Director General, Ministry of Statistics & Programme Implementation and Distinguished Fellow at Pahle India Foundation
Published on May 2, 2025