Changes Brought by New GDP Series (Base Year 2011-12)


GDP or Gross Domestic Product is the total value of all goods and services produced in a country’s economy in a specific time period and is usually given in local currency. GDP growth rate, denoted in percentage, is the growth in GDP as compared to that of the previous year.
There are variations in the ways to calculate GDP and it is the introduction of these new calculations that has caused a spike in India’s recent GDP growth rate, leading to quite a lot confusion and debate.
The changes in the GDP calculation were devised by India’s statisticians working for the Central Statistics Office (CSO) that is under the Ministry of Statistics & Programme Implementation (MOSPI), who released the new figures earlier in February.

There are three important changes made in the calculation of the GDP:

  1. Changing the base year

  2. Replacing factor costs with market prices

  3. Widening of the data pool

Changing the Base Year

Choosing a base year is the first step while counting the ‘real’ GDP. A real GDP growth rate removes any effects that have arisen due to inflation to give us a truer picture of economic reality. For the revised GDP calculations the Indian statisticians have changed the base year from 2004-05 to 2011-12. This means that the ‘real’ GDP will be counted by keeping the prices of 2011-12 as the base prices instead of referring to the prices of 2004-05. This change alone has played an important part in shooting up the GDP and related numbers. The change in base year is not an unusual phenomena as base year is regularly updated.

 Replacing Factor Costs with Market Prices

There are two ways to calculate GDP and those are calculating via factor costs or calculating via market prices. Until the recent revisions India had used factor costs for calculating GDP but now we have shifted towards market prices. Factor costs means the cost of production that the producers or service providers have incurred after removing the effect of indirect taxes or subsidies. But by the recent changes we have now shifted towards calculating the GDP by measuring the Gross Value Added (GVA) at market prices. Market prices mean the actual expenditure incurred by  consumers. These will also include any subsidies such as food and petrol that are provided to the consumer. The shift from factor costs to market prices indicates that India is slowly conforming to international norms as most countries use market prices for calculating the GDP.

Widening of Data Pool

In statistics, the larger the sample, the more accurate the extrapolations are, generally speaking. Previous data was sampled from Annual Survey of Industries (ASI), which comprised of about two lakh factories. The new database draws from the five lakh odd companies registered with the Ministry of Corporate Affairs (MCA21). While the earlier data gave only a factory-level picture, the new data looks at the enterprise level.

Thursday, 28th Jan 2016, 11:43:12 PM

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