What is the issue?
- An expert committee set up by National Statistical Commission (NSC) released recently the report on back series GDP data.
- In this context, it is essential to understand certain aspects associated with the report and the calculations.
What was the 2015 shift?
- In 2015, the government moved to a new base year of 2011-12 from the earlier 2004-05 for national income accounting.
- The base year of national accounts had been revised earlier in 2010.
- In the new series, the Central Statistics Office (CSO) did away with Gross Domestic Product (GDP) at factor cost.
- It adopted the international practice of valuing industry-wise estimates as gross value added (GVA) at basic prices.
What was its effect?
- With the new base year, the growth rate of the economy for 2013-14 was estimated at 6.9%.
- But notably, it was 4.7% on the 2004-05 base.
- Similarly, the growth rate for 2012-13 was revised upwards to 5.1% from 4.5%.
- Growth of the manufacturing sector also became higher in the new series.
What was the resultant challenge?
- MCA-21 - It is an e-governance initiative of the Ministry of Company Affairs (MCA) that was launched in 2006.
- It allows firms to electronically file their financial results and advance filing of corporate accounts to calculate national accounts.
- The CSO, as usual, used the establishment-based datasets.
- These are Index of Industrial Production (IIP) and Annual Survey of Industries (ASI).
- But apart from this, it started to use the enterprise-level corporate database of MCA-21.
- Data - With the above change, for years preceding 2011-12, the CSO faced issues for evaluating GDP with the new base year.
- This was due to the lack of availability of the MCA-21 database.
- Hence the back series calculation proved to be a “major statistical challenge”.
What does the GDP, GVA difference imply?
- As per the new methodology, CSO calculates GDP by adding product taxes to the GVA at basic prices, and removing subsidies.
- [GDP = GVA at basic prices + Product taxes - subsidies on products]
- GDP, which incorporates indirect tax collections net of subsidies, should normally be higher than GVA.
- But if net indirect tax collections grow slower than subsidies, GVA could be higher than GDP.
- The new series shows that on at least 12 occasions out of 18 until 2011-12, GVA was higher than GDP.
- This is possibly because fertiliser subsidy was scaled up significantly from 2005-06 following poor agricultural growth.
Source: Indian Express