{"id":54003,"date":"2019-11-13T19:00:33","date_gmt":"2019-11-13T13:30:33","guid":{"rendered":"https:\/\/blogadmin.forumias.com\/?p=54003"},"modified":"2019-11-13T16:34:52","modified_gmt":"2019-11-13T11:04:52","slug":"7-pm-the-problem-with-re-basing-gdp-estimates-13th-november-2019","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/7-pm-the-problem-with-re-basing-gdp-estimates-13th-november-2019\/","title":{"rendered":"7 PM | The problem with re-basing GDP estimates | 13th November, 2019"},"content":{"rendered":"\n<p><strong>Context:\n<\/strong>Base\nyear change and the related issues.<\/p>\n\n\n\n<p><strong>More\nin news:<\/strong>\nCSO to change GDP base year to 2017-18 from 2011-12<\/p>\n\n\n\n<p><strong>Gross\nDomestic Product (GDP):<\/strong><\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>Gross Domestic Product (GDP) is the total monetary or market value of all the finished goods and services produced within a country&#8217;s borders in a specific time period. <\/li><li>As a broad measure of overall domestic production, it functions as a comprehensive scorecard of the country\u2019s economic health.<\/li><li>Though GDP is usually calculated on an annual basis, it can be calculated on a\u00a0quarterly\u00a0basis as well.<\/li><li>GDP provides an economic snapshot of a country, used to estimate the size of an economy and growth rate.<\/li><li>GDP can be calculated in three ways, using expenditures, production, or incomes. It can be adjusted for inflation and population to provide deeper insights.<\/li><li>Though it has limitations, GDP is a key tool to guide policymakers, investors, and businesses in strategic decision\u00a0making.<\/li><li>There are several types of GDP measurements:<ul><li><strong>Nominal GDP<\/strong>\u00a0is the measurement of the raw data.<\/li><li><strong>Real GDP<\/strong>\u00a0takes into account the impact of inflation and allows comparisons of economic output from one year to the next and other comparisons over periods of time.<\/li><li><strong>GDP growth rate\u00a0<\/strong>is the increase in GDP from quarter to quarter.<\/li><li><strong>GDP per capita<\/strong>\u00a0measures GDP per person in the national populace; it is a useful way to compare GDP data between various countries.<\/li><\/ul><\/li><\/ul>\n\n\n\n<p><strong>Central\nstatistical organization&nbsp;(CSO):<\/strong><\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>The&nbsp;Central statistical organization&nbsp;(CSO)\nbelongs to the&nbsp;Ministry of Statistics and Programme Implementation (MOSPI).\n<\/li><li>It was set up in&nbsp;May 1951&nbsp;in the\nCabinet Secretariat with the primary object of providing technical leader ship\nin building up the statistical system in the country. <\/li><li>The main functions of CSO is to provide\nadvisory services to other statistical agencies, keeping liaison (public\nrelation) with international statistical bodies, preparing and publishing\nnational accounts statistics, industrial statistics, conducting economic census\nand training statistical personal in official statistics etc.<\/li><li>CSO is responsible for the preparation of\nnational accounts, which includes Gross Domestic Product, Government and\nPrivate Final Consumption Expenditure, Fixed Capital Formation and other\nmacro-economic aggregates.<\/li><\/ul>\n\n\n\n<p><strong>The\nnew base year:<\/strong><\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>From January 2015, the Central Statistics\nOffice (CSO) updated base year for GDP calculation to 2011-12, replacing the\nold series base year of 2004-05, as per the recommendations of the National\nStatistical Commission. <\/li><li>Base year is carefully selected because of\nthe impact it has on the numbers and the year chosen is usually one in which no\nserious anomaly was present.<\/li><li>CSO proposed to replace gross domestic\nproduct (GDP) series of 2011-12 base year with a new set of National Accounts\nusing 2017-18 as the base year.<\/li><\/ul>\n\n\n\n<p><strong>Why\nis base year changed?<\/strong><\/p>\n\n\n\n<p>Change of base\nyear to calculate GDP is done in line with the global exercise to capture\neconomic information accurately. Ideally, the base year should be changed after\nevery five years to capture the changing economy.<\/p>\n\n\n\n<p><strong>What\nis issue with base year as 2017-18?<\/strong><\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>Normally, rebasing is a routine\nadministrative decision of any national statistics office. However these are\nnot normal times for India.<\/li><li>There has been a raging controversy over\nthe current GDP figures on account of questionable methodologies and database\nused.<\/li><li>The current method was adopted in 2015\nwhen CSO released a new series of GDP with 2011-12 as base year, replacing the\nearlier series with the base year 2004-05.<\/li><li>The absolute GDP size in the new base year\n2011-12 contracted by 2.3% (compared to old series) and the annual GDP growth\nrate went up sharply from 4.8% in the old series to 6.2% in 2013-14. Such large\nvariation in the growth rate questions the new GDP series.<\/li><li>The economic shock particularly after\ndemonetization severely hurt output and employment. For example, the ministry\nof finance\u2019s report on income tax reforms for building new India, provided data\non fixed investment in the private corporate sector based on actual corporate\ntax returns.<\/li><li>It shows that the fixed investment to GDP\nratio in the private corporate sector fell sharply from 7.5% in 2015-16 to 2.8%\nin 2016-17.<\/li><\/ul>\n\n\n\n<p><strong>The\nroot of the problem:<\/strong><\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>The source of the problem is the\nunderlying methodology for calculating GDP (in the 2011-12 series).<\/li><li><strong>Unreliable\ndata: <\/strong>The\ndatabase of the Ministry of Corporate Affairs has been criticized as\nunreliable. Since the CSO estimates value addition in private corporate sector\nusing statutory filling of financial results of the ministry, it is possible that\nthe output has been overestimated.<\/li><li><strong>State\ndomestic product (SDP):<\/strong> SDP estimation uses many of the same data\nand methodology. The changes made in 2011-12 base year revision had adversely\nimpacted the quality of SDP estimates.<\/li><li><strong>Informal\nSector: <\/strong>for\nestimating value addition by informal or unorganized sector, State-specific\nlabour productivity estimates are unreliable in the 2011-12 series. Hence the\nmethod used distorts output estimation.<\/li><\/ul>\n\n\n\n<p><strong>Conclusion:<\/strong><\/p>\n\n\n\n<p>The proposed\nchange over to a new base year of 2017-18 is a welcome decision. However,\nconsidering the methodological disputes and data related questions, it is\nrequired that the above mentioned issues are reviewed and resolved on a prior\nbasis.<strong>Source: <\/strong><a href=\"https:\/\/www.thehindu.com\/opinion\/lead\/the-problem-with-re-basing-gdp-estimates\/article29956137.ece\">https:\/\/www.thehindu.com\/opinion\/lead\/the-problem-with-re-basing-gdp-estimates\/article29956137.ece<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Context: Base year change and the related issues. More in news: CSO to change GDP base year to 2017-18 from 2011-12 Gross Domestic Product (GDP): Gross Domestic Product (GDP) is the total monetary or market value of all the finished goods and services produced within a country&#8217;s borders in a specific time period. As a&hellip; <a class=\"more-link\" href=\"https:\/\/forumias.com\/blog\/7-pm-the-problem-with-re-basing-gdp-estimates-13th-november-2019\/\">Continue reading <span class=\"screen-reader-text\">7 PM | The problem with re-basing GDP estimates | 13th November, 2019<\/span><\/a><\/p>\n","protected":false},"author":61,"featured_media":49370,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[130,9],"tags":[],"class_list":["post-54003","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-7-pm","category-public","entry"],"jetpack_featured_media_url":"https:\/\/i0.wp.com\/forumias.com\/blog\/wp-content\/uploads\/2019\/07\/7-PM.png?fit=1000%2C500&ssl=1","views":{"total":0,"cached_at":"","cached_date":1701595350},"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/54003","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/61"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=54003"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/54003\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media\/49370"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=54003"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=54003"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=54003"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}