Gross Domestic Product or GDP, is a way to measure the size and health of a country’s economy, more like a report card for a nation, it tells us how much the country is producing in terms of goods and services.
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Gross Domestic Product or GDP, is a way to measure the size and health of a country’s economy, more like a report card for a nation, it tells us how much the country is producing in terms of goods and services. When GDP is growing, it usually means businesses are producing more goods and services, more people are getting jobs, and incomes are rising. GDP also matters on the global stage. India currently ranks among the world’s top five economies and is projected to become the third largest by 2030.
GDP, as an instrument to measure the economy, needs regular calibration to capture the economy’s accurate pulse and this is achieved through updating the base year of GDP at regular intervals to keep pace with a changing economy. As the economy reshapes itself, new industries emerge, consumption patterns change and new data sources evolve, revisions help the official data catch up with the realities and make the estimates more accurate and robust.
Availability of new data sources since the last base revision have helped us view the sectoral and regional contributions to GDP more clearly and adopt better methods, for instance, to estimate the value added by the unincorporated sector broadly covering the informal sector also.
In the intervening period since the last base revision, among others, some new data sets like Management & Administration related data (MGT-7/7A) for companies has become available that provides information on the number of business activities undertaken by the enterprise, description of business activity as per NIC 2008 and percentage turnover from each business activity (industry) for each year. So, while rebasing, for multi-activity enterprises, value added is now allocated across activities based on newly available MGT-7 data rather than entirely to the major activity as was done earlier. This change allows us to capture sectoral contributions more accurately, providing a clearer view of how each business activity drives the economy.
Just as new company-level data helps us measure sectoral contributions more accurately, enhanced use of GST data in the new series allows for a finer, more precise view of regional contributions of GDP by inter alia, improving regional allocation pertaining to private corporate sector and through better compilation of expenditure-side estimates at state level.
Availability of annual data from surveys like ASUSE and PLFS that wasn’t available earlier has also allowed us to adopt a better methodology for estimating value added by unincorporated sector annually, instead of inferring its contribution to GDP indirectly from other indicators, as was done before. This matters because this sector, comprising of millions of household businesses, small shops, and self-employed workers, forms a huge part of the economy and plays a vital role in jobs and livelihoods.
The base revision is more than just use of new data sources, it is also about improvements in methodology as well, and in this regard, the new GDP series has seen a number of methodological improvements.
Earlier, double deflation, a detailed method to adjust the GDP for changing prices was applied only to agriculture sector. In the new 2022-23 series, double deflation has been expanded to manufacturing sector where sufficient data is now available and single extrapolation/volume extrapolation is used in all other sectors. This approach makes the best use of the data at hand, keeping the estimates as accurate and reliable. Double deflation is very data-intensive, as it requires detailed information on prices for both outputs and inputs. As more of this data becomes available over time, we will be able to expand its use to more sectors.
A notable methodological improvement is the alignment of estimates of the economy based on what is produced (production side) and what people and businesses spend (expenditure side). The two often don’t match perfectly, a common occurrence in countries around the world, especially in quarterly GDP. To address this issue, in the new series, the framework of ‘Supply & Use Tables’ is being used to ensure that discrepancies are limited in the early estimates and finally eliminated when full set of data becomes available at the time of final estimates.
The updated GDP is like looking at the economy through a sharper lens. Every economic activity, big or small, comes into clear focus, accurately revealing its contribution to the nation’s growth. By using better data, refining methods, and aligning with international best practices, the Ministry has brought the economy into sharper view. For citizens, this means that policies and public services are guided by an accurate understanding of how the economy works, making growth something that is felt in everyday life, not just on paper.
Sh. Saurabh Garg
(The writer is Secretary, Ministry of Statistics and Programme Implementation. Views are personal)