The finance ministry on Friday sought to underplay GDP growth overestimates due to a “black hole” in the MCA database used for the computation of national income.
The finance ministry on Friday sought to underplay GDP growth overestimates due to a “black hole” in the MCA database used for the computation of national income. It said only 16.4% of the companies in the database of service-sector firms are either closed or non-traceable, against 38.7% reported by sections of media, citing the latest report of the National Sample Survey Organisation. If one takes the paid-up capital of such elusive firms, then their share in the database was even lower at between 12-15% in the five-year period through FY17.
The ministry also argued that the blowing up (of data) anyway doesn’t materially affect the year-to-year GDP growth, as much as the level of GDP. However, an analysis of some 3,000 non-financial and non-government listed firms tracked by the Reserve Bank of India shows a stark difference between their profitability and the growth in gross value added (GVA) in manufacturing as well as services segments under the new GDP series in recent years (see the chart).
Manufacturing and services segments constitute the likes of “construction” and “trade, hotels, transport, communication and services related to broadcasting”. The MCA21 data, relied on for calculations of the national income, had 5.6-7.1 lakh companies between FY13 and FY17. However, the difference of growth rates of these two key indicators was still starker in the UPA years (FY13 and FY14).
“Of the 38.7% (out-of-survey) enterprises, out-of-coverage enterprises comprise 21.4% (and these) are engaged in some economic activity, possibly in the manufacturing sector,” the ministry noted. Of the remaining 17.3% out-of-survey enterprises, those not in the MCA database for GDP estimation comprise 0.9%, so only the balance 16.4% are closed/non-traceable ones, it added. Since the proportion of such defunct/elusive firms in the database is falling, the ministry noted, “the extent of overestimation of GDP in all likelihood is marginal”.
The ministry asserted that the share of total paid-up capital of the private corporate sector that is accounted by non-responsive enterprises affects GDP estimates using the MCA database but not the number of non-responsive enterprises in the private corporate sector.
“As such, the GVA estimated for the responsive enterprises was raised by a blow-up factor of only 1.13-1.17 to estimate the GVA of the entire private corporate sector,” the ministry said.
“Most of the non-responsive enterprises did not provide data because they exercised their discretion of filing returns in subsequent years while continuing to engage in activities reflected in their previously filed return. Accordingly, their inclusion in the overall GVA estimation was legitimate,” the ministry asserted.
The proportion of firms in the MCA data base that have ceased their operations varies minimally from year to year from 2012-13 to 2016-17. “This feature ensures that although GVA levels could be slightly more or less than what they actually are, the growth rate of GVA from year to year will not be affected,” it said.
“The MCA data base on the private corporate sector is a valuable addition to the data sources available for estimation of GDP and its use provides a more correct measure of economic activity in the country,” the ministry concluded.