The Central Statistical Organisation (CSO) released the Quick Estimates of National Accounts for 2008-09 and simultaneously moved the base year for inflation-adjusted estimates to 2004-05 from the earlier base of 1999-2000. At the macro-level, there are three important takeaways from this new series. First, our GDP is 6% higher than we believed before. It was Rs 52.3 lakh crore in 2008-09 and not Rs 49.3 lakh crore as earlier estimated. The CSO has given all of us a raise.

This ?gain? of about Rs 3 lakh crore in the GDP of 2008-09 is almost the same as the gross fiscal deficit of the Union government in the same year (Rs 3.2 lakh crore). The GDP estimates for the earlier years till 2004-05 are also re-scaled upwards but the ?gain? diminishes as we move closer to the base year. Nevertheless, the result of this ?improved? estimation of the GDP is that the GFD/GDP ratio for all the years from 2004-05 will look a little better now than they have appeared so far.

The GFD/GDP ratio for 2008-09 now works out to 5.9%, not 6.2%, with the 1999-2000 based GDP numbers. The benefit in the earlier years is of the order of 0.1-0.2%.

A quick clarification is necessary here. We are discussing changes in the value of the GDP in nominal terms. Ideally, there should be no change in the nominal value of the GDP because of a change in the base year. The base year change impacts estimates of GDP at constant prices. But the CSO clarifies that changes do happen to nominal GDP as well ?due to widening the coverage and inclusion of long-term survey results.?

The second takeaway at the macro level is the surprising lack of impact of the change of base on the inflation-adjusted growth rates. Like one does not expect a change in the nominal value, one does expect a change in the growth rate (usually an upward revision) when the base year changes.

This is because over time, old weights become over-weight on the slower sectors and become under-weight on the faster sectors. A correction of this should lead to some acceleration in growth rates.

The revision in the base year had no impact on the growth in GDP (at constant prices) in 2005-06, 2006-07 and 2008-09. Only the growth rate for 2007-08 was revised upwards from 9% to 9.2%. The revision in the 2007-08 growth rate, the CSO explains, is because of the replacement of the Index of Industrial Production with the results of the Annual Survey of India to estimate growth for the manufacturing sector in the year.

A happy side effect of the CSO?s efforts to replace the IIP with something better is that the release of ASI results has been accelerated. Till recently, the latest ASI results were for 2004-05.

It is now hoped that the CSO will soon release the much-awaited new IIP series with a new base year of 2004-05. Further, given the rapid growth seen post 2004-05, it is imperative that the IIP base year is changed more frequently than in the past. Better still, the IIP (and other indices as well) should quickly move to chain-linked index calculation methodology.

The third macroeconomic takeaway from the new series is a complete reversal in our understanding of the growth in 2008-09. Interestingly, in spite of this complete reversal of growth rates, the overall GDP growth rate remains steady as a rock. The largest change in sectoral growth rates is in capital formation in 2008-09. This has reversed from a growth of 8.3% to a fall of 1.7%. Correspondingly, the growth in private final consumption expenditure has shot up from 2.9% to 6.8%.

Thus, the CSO told us in May 2009 that while the growth in investments in 2008-09 had dropped to about half of its growth in 2007-08, the fall in consumption expenditure was much sharper at about a third of the earlier growth. Now, it says that there was no growth at all in investments; there was a fall and the fall in the growth in consumption expenditure is much less.

This is a very significant change in our understanding of the growth process and the impact of the global financial market crisis on the Indian economy. It will be useful if the CSO provides the back series quarterly estimates of GDP with the new base to enable a better understanding of the impact of the crisis. It is unlikely that this change in the composition of growth in 2008-09 is because of a change in the base year. This is more likely the result of revisions arising because of new data. It will be useful if the CSO explains this revision in some detail.

The author heads the Centre for Monitoring Indian Economy