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Prelims Capsule


Is India’s GDP data accurate?

Is India’s GDP data accurate?

Tag:GS 3 ||  Economy ||  Structure of the Indian economy  || National Income and its measures

  • Why in News?
  • Geeta Gopinath flagged concerns about methods used for the calculation of India’s GDP.
  • What happened?
    • In 2015, government had changed GDP calculation
  • Changes in calculation method:
    • The government adopted the recommendations of the United Nations System of National Accounts (UNSNA).
    • The UNSNA method included measuring the GVA, Net Value Added (NVA), and the use of new data sources wherever available.
    • Change in base year:
      • The base year used for calculations to was brought forward to 2011-12 from the previous 2004-05.
  • Key differences between new and old series:
  • The old method measured volumes — actual physical output in the manufacturing sector, crop production, and employment for the services sector.
  • The new method (MCA-21 database) allows for a more granular approach, looking at the balance sheet data of each company and aggregating the performance of the sector from that, after adjusting for inflation.
  • For the most sectors, simply changing the price vectors from a 2004-05 to a 2011-12 base was enough, but others required a splicing of new and old data in the relevant proportions to arrive at the closest approximation.
  • What are the positive aspects of the new method?
  • It is statistically more robust as it tries to relate the estimates to more indicators such as consumption, employment, and the performance of enterprises.
  • It also incorporates factors that are more responsive to current changes, unlike the old series that usually took 2-3 years to register an underlying change.
  • What are the negative aspects of the new methodology?
    • GDP deflator:
      • IMF’s chief economic counselor Geeta Gopinath flagged concerns over the “deflator” used to calculate the real GDP.
    • MCA’s corporate database (MCA 21):
      • The recently released results of the non-financial services sector by the NSSO found that up to 45% of the sample companies—drawn mainly from the MCA database—could not be traced or failed to supply the data to the NSSO as under the Statistics Act, 2008.
    • The sudden spike in GDP growth is not in sync with other macroeconomic indicators:
      • In Jan 2019, the Business Standard leaked the NSSO’s PLFS (Periodic Labour Frce Survey) data, the publication of which was withheld, revealed that unemployment in the country was at a 45-year-high of 6.1 per cent in 2017-18.
      • As the employment rate has fallen, one would also expect output growth to have decreased, unless there is a huge rise in productivity per worker for which there is no evidence.
  • Problems caused due to the new methodology:
    • Acceptance of the new method had led to the problem of not being able to compare recent data with the years preceding 2011-12.
    • The back series data had to be released to provide the earlier years’ data using the new calculations.
  • Nov 2018:
    • NITI Aayog released the back series data for the GDP growth rate for the years 2004-05 to 2011-12, based on the new base year 2011-12
  • What does the new data say?
    • According to the new methodology the GDP growth during the UPA years during both UPA-I and UPA-II were only 6.7%, whereas according to the old methodology the growth rate was 1% and 7.46% respectively.
    • In comparison, the current government has witnessed an average GDP growth rate of 35% during the first four years of its term, based on the new method.
    • The new data shows that, contrary to the earlier perception, the Indian economy never graduated to a ‘high growth’ phase of more than 9% in the last decade or so.
    • The newer data, especially for the mining and manufacturing sectors, shows that India did not recover from the global financial crisis as quickly as initially thought.
  • What are the problems with the new data?
  • Skepticism over the calculation of the back series data:
    • There are a number of ways to calculate the back series data.
    • While it was being handled exclusively by the CSO, the assumption was that the statistically strongest method would be chosen.
    • Former Chief Statistician of India Pronab Sen pointed out that the fact that the data was released by Niti Aayog led to questions over the credibility of the method chosen (since it brought political considerations into the fray).
  • Are these numbers (back series data) different from previous estimates?
  • The draft report of NSC released in 2018 showed that growth during the UPA years crossed 9% on at least four occasions, and even hit 78% in 2010-11.
  • This report pegged the average GDP growth during UPA-I at about 8.4% and UPA-II at 7.7%.
  • The government, however, was quick to clarify that this was just a draft report that used only one of the many methods on offer to estimate the back series, and that it was not the final number.