Home / Politics / Policy /  India to change the way it measures economic growth

New Delhi: In a major overhaul of the way India’s gross domestic product (GDP) is calculated, the Central Statistics Office will start measuring the country’s economic growth by gross value-added (GVA) at basic prices, replacing the practice of measuring it by GDP at factor cost.

The new measurement under the new base year of 2011-12, replacing 2004-05, will be released on 30 January for three years to 2013-14.

This is the most comprehensive review of the GDP measurement, including the sources of data, ever undertaken, said Pronab Sen, chairman of the National Statistical Commission.

The new method was recommended by the United Nations System of National Accounts in 2008 and will make India’s GDP growth numbers comparable with that of developed nations.

GVA at basic prices will add the net of production taxes and subsidies to GDP at factor cost. While the change in base year is likely to lead to a higher GDP, the impact of the measurement change is unclear.

Stamp duties and property taxes are part of production taxes in India, while subsidies to labour, capital and investment such as apprentice subsidies and interest subsidies constitute production subsidies.

The Indian economy grew at 6.7%, 4.5% and 4.7% during 2011-12, 2012-13 and 2013-14 fiscal years, respectively. Sen said that along with GVA at basic prices for these three years, revised measurements for GDP at factor cost will also be provided in the appendix for historical comparison. Providing GVA growth rates at basic prices historically for earlier years may take longer, he said.

The statistics department will release the advance estimates of the economy for 2014-15 along with the fiscal third quarter data on 9 February.

The change in base year is being done in accordance with the recommendation of the National Statistical Commission, which had advised to revise the base year of all economic indices every five years. The new base year has been selected in line with the latest quinquennial round of employment-unemployment survey.

The new 2011-12 series will incorporate results of the recent national sample surveys such as enterprise survey (2010-11), employment-unemployment survey (2011-12), all India debt and investment survey, situation assessment survey of farmers and survey on land and livestock holdings (2013). It will also take into account the population census (2011), agriculture census (2010-11) and livestock census (2012).

The statistics department will also release Consumer Price Index (CPI) for January with a new base of 2012 next month. The GDP data revision will also incorporate the new CPI instead of the current practice of using CPI for various groups such as agricultural labourers and industrial workers. The new series of Index of Industrial Production and Wholesale Price Index are likely to be released by March 2016.

The change in base year of national accounts statistics will result in an increase in the size of the economy in 2013-14 to 111.7 trillion as against the earlier estimate of 105.4 trillion, said Devendra Kumar Pant, chief economist and senior director (public finance) at India Ratings.

“The 2013-14 fiscal deficit and current account deficit are likely to decline to 4.3% of GDP (4.6% earlier) and 1.6% of GDP (1.7% earlier), respectively," he said.

India Ratings expects the economy to reach $3 trillion by 2019-20 with the change in base to 2011-12, it said in a statement. On the 2004-05 base, it would have happened a year later in 2020-21.

“Of the last three base year changes, while the size of economy changed significantly in two cases, it did not change much in one case. The growth impact of a base year change both in India and recently in UK has been minimal," the rating agency said. “The reason for the increase in size of the economy is the usage of more up-to-date information for these estimations."

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