Base effect
In one line: A base effect is the distortion in a growth rate caused by an unusually high or low value in the comparison period.
How it works
Growth rate = (this period minus base period) divided by base period. If the base period was unusually low, even ordinary output looks like fast growth. If it was unusually high, growth looks weak. The same logic applies to inflation: a spike in prices last year makes this year's inflation look low.
Why it is in the news
The Indian Express notes that August 2025 output was held down by inventory adjustments before the GST rate cuts of 22 September 2025, when firms expected lower tax rates and reduced stocks. August 2026 is compared with that weak month, which flatters the 8% figure. Month-on-month data, and growth over several months (6.7% for April to August), help check for this effect.
Where to go next
- Use-based classification
- IIP base year revision and the Output PPI
Base effect in the news
- Retail inflation rises to 5.54% in September as food prices jump; rural CPI crosses 6% 13 October 2026
Why last year's prices shape this year's inflation rate.
- Industrial output grows 8% in August 2026, but consumer non-durables lag at 2.1% 29 September 2026
Why a large year-on-year number can overstate real change.
Previous-year questions on this
- 2024 · GS3 · 10 marks What are the causes of persistent high food inflation in India? Comment on the effectiveness of the monetary policy of the RBI to control this type of inflation.
- 2023 · GS3 · 10 marks Faster economic growth requires increased share of the manufacturing sector in GDP, particularly of MSMEs. Comment on the present policies of the Government in this regard.
- 2022 · GS2 · 15 marks Besides the welfare schemes, India needs deft management of inflation and unemployment to serve the poor and the underprivileged sections of the society. Discuss.
- 2017 · GS3 · 15 marks "Industrial growth rate has lagged behind in the overall growth of Gross-Domestic-Product (GDP) in the post-reform period" Give reasons. How far the recent changes in Industrial Policy are capable…
- 2020 · Prelims Consider the following statements: 1. The weightage of food in Consumer Price Index (CPI) is higher than that in Wholesale Price Index (WPI). 2. The WPI does not capture changes in the prices of…