By PC Mohanan
Gross Domestic Product (GDP) is a measure of the aggregate value of goods and services produced within an economy in a given period. The coverage of what constitutes production and the methods to assess productive activities is a complex task. Since large parts of the required data are not available annually, it becomes necessary to use indicators to project base year numbers for many activities in subsequent years. Changes in methodologies and improvements in data measurement lead to overhauling GDP estimates at regular intervals.
Such revisions usually change the level of GDP and its sectoral shares. The conceptual basis for GDP is contained in the UN supported recommendations commonly called the System of National Account (SNA). This framework contains a set of tables covering the entire gamut of economic production, consumption and expenditure and most countries follow it now. The most recent SNA version is the 2025 one, which addresses issues such as digitalization, globalization, the informal economy and sustainability, keeping the SNA 2008 as the core framework.
The significant shift in the data sources and the adoption of SNA 2008 framework for the 2011-12 GDP series had generated critical debates on the GDP numbers when these were released in 2015. One of the major changes was the incorporation of the corporate sector data from MCA21 filings in instead of the RBI study on company finances. Apart from this, several new datasets including improved local level body data formed the basis for the 2011-12 series.
This was not the case for the 2011-12 series. For 2013-14, the growth rate was 6.6% according to the new series compared to 4.7% in the previous series. This was attributed to using MCA21 data for the private corporate sector. The reduction in the share of the household or informal sector in the GDP in the 2011-12 series was also attributed to this. There were also other structural shifts, like the increase in manufacturing share and the corresponding decrease in the share of services in the 2011-12 series. For the first time, the base revision acquired critical examination, unlike in the past.
The long passage of time since the 2011-12 revision—not just of GDP but of other key economic indicators — has generated significant interest in the current revision.According to NSO releases, several improvements are being made in the new series to address the previous series’ deficiencies and further refine the estimation procedure. Perusing the reports of various sub-groups on base revision, one can see that extensive efforts have been made to use most relevant datasets besides fine-tuning the methodology.
MoSPI has noted that new datasets like the frame of active companies (having enterprise level details on paid-up capital, company type, management & administration related data) and frame of active Limited Liability Partnership companies with details on industrial activity etc are now available. With this it is possible to segregate activities in case of multi-activity enterprises in Non-Financial Private Corporations Sector. The MGT-7/7A data with information on the number of business activities with description of activity and percentage turnover helps to address the main criticism of the earlier series allocating the entire contribution as per its major activity, which perhaps favoured the manufacturing sector in the old series at the cost of services sector.
Another improvement proposed is the use of better multipliers for non-reporting companies in place of a common multiplier, using the disaggregated level paid-up capital data. A significant change is the use of double deflation for many of the manufacturing categories in place of the single deflation of GVA used for all categories in the past.
However, one cannot ignore the use of out-dated population numbers in the present base year revision. In fact, projected population numbers are widely used in compiling GDP estimates because survey estimates do not provide useable aggregate numbers. The practice has so far been to use value added per worker figures from surveys and inflate it with estimated number of workers in the respective categories using survey ratios and projected population. The official projections currently available are those prepared by the expert group for the period 2011-2036 using then available fertility assumptions and their holding true in future is a critical condition in this exercise.
Though the MoSPI has initiated a plethora of surveys in recent times like the annual employment and enterprise surveys, these may not find use in regular annual GDP estimation in subsequent years. Incorporating annual survey data in GDP estimation could make the GDP volatile and problematic for use in policy purposes. The use of the Household Consumer Expenditure Survey of 2022-23 with its methodological change incorporating three different household visits to collect the information will certainly bring in a more realistic but higher level of private consumption expenditure in the expenditure aggregate estimates.
The past revisions show that every revision raises the GDP level. The GDP for 2011-12 at current prices was 5.3% higher than the GDP in the 2004-05 base year. The 2025-26 advance GDP estimate of Rs 357.14 lakh crore or approximately 4.18 trillion dollars places India as the 4 th largest economy in the world. With the new series the GDP in 2024-25 would certainly higher than the Rs 330.68 lakh crore in the old base year.
While the attention is more on national GDP estimation, state finances have significant stake in the State Domestic Product (GSDP). The states however cannot adopt an independent approach for their GSDP estimation as it has to be in agreement with the published GDP of the country. States like UP has in recent times claimed to develop a bottoms-up approach constructing district or sub-district level GDP as the starting point and aggregating upwards. A brief look at the methodology followed in the new GDP revision makes it clear that the methodology cannot be adopted by the states in toto for the revision of their GSDPs. They will be dependent on apportioning of GDP downwards to the States for many sectors further diminishing its role as a realistic indicator of the state’s economy.
(The author is former member, National Statistical Commission)