Current Affairs GDP Back-Series Data

New GDP Back Series Data in India

The revised GDP Growth rate figures for 2004-2014 based on the back-series data show less growth than earlier figures.

• The GDP back series data released in November trimmed the growth numbers for the UPA government’s nine years (2005-06 to 2013-14), with the Indian economy growing at an average 6.7% in four years of the UPA’s term (2005-06 to 2008-09) as well as the UPA’s second term (2009-10 to 2013-14) — lower than the earlier estimates of 8.1% and 7.0% (2004-05 base) respectively
• In comparison, the current government has witnessed an average GDP growth rate of 7.35% during the first four years of its term
• The data also show that India’s recovery from the global financial crisis took longer than previously thought.

What is the Meaning of GDP Back-Series Data?
• Macroeconomic aggregates such as GDP and GVA (gross value added) are estimated every year at the prices of a selected year, the base year.
• Base years are periodically updated, and the GDP for every year all the way back to 1950-51 is then re-estimated.
• The Indian government, in 2015, changed the methodology and the base-year for the computation of its economic performance, moving towards a Gross Value Added (GVA)
method from the earlier GDP calculations and bringing forward the base-year to 2011-12 from 2004-05. The GDP growth rates from the year 2011-2012 was calculated using
this new methodology.
• This, however, meant that the newer estimates could not be compared with the older data. The back-series released provides the growth estimates for previous years (Pre 2011-2012) using the new methodology
• Thus, such periodic revision of GDP Data for foregone years is called GDP Back Series Data.

What was the Issue in this Revision?
• Three years ago, at the time of re-basing the GDP series, the forward computation was done using data sourced from the Ministry of Corporate Affairs’ MCA-21 database of balance sheets. But the MCA data are available only 2011-12 onwards.
• Thus, the key difficulty was the method to be used for computing the series before 2011-12. For this Central Statistics Office (CSO), under guidance of the NITI Aayog,
used the data extracted from the Annual Survey of Industries (ASI) for estimating these growth rates.

Criticisms of CSO’s Methodology:
• ASI’s coverage is relatively much smaller than the MCA’s coverage.
• Combining MCA data with the ASI data is technically problematic. There is no statistically robust way of seamlessly linking these two datasets. Their coverage differs significantly.

• While the MCA would cover both the manufacturing and non-manufacturing GVA of this company from 2011-12 onwards, the ASI has been found to cover only manufacturing establishments in such cases. Non-manufacturing GVA inside a manufacturing corporate enterprise is not captured by it.
• A structural break can be observed in the back series before and after the year 2011-12. The upgradation to MCA from ASI data 2011-12 onwards had led to upward revisions. Going backwards, the revisions are by and large sharply downwards.
• Bibek Debroy, Chairman of Prime Minister’s Economic Advisory Council, has shown concerned about what he calls the use of “less than perfect” deflators by the CSO.
• Aravind Subramanian, former Chief Economic Adviser criticized the move by arguing that:

  • New GDP back-series data hurts credibility of CSO
  • Less involvement of technical experts in the formulation of the New GDP Back Series.

Anomalies across various indicators: If we look at the other indicators like the Purchasing Managers’ index during that period, we see a difference between what those indicators show and what the recent back-series shows.

• The new back series data diverges significantly from a draft report released by the National Statistical Commission earlier this year, which showed that growth during the UPA years crossed 9% on at least three occasions, and even hit 10.23% in 2007-08.
• Many economists have questioned the NITI Aayog’s role, as it is a Political Institution, in the release of the statistical exercise of CSO, which comes under the Ministry of Statistics and Programme Implementation (MoSPI).

Arguments in Favour of the New GDP Back-Series:
Globally Accepted Methodology: The method of computation reflects the latest United Nations System of National Accounts (2008).
• Chairman of the 15th Financial Commission N.K.Singh opines that the Central Statistics Office (CSO) is a respected and credible organization and its estimates need to be honoured.
Multiple Checks: Ten leading statisticians/ economists of the country have reviewed and vetted this methodology.

Reason for low Growth Rates: The lowering of GDP growth for 2004-2005 to 2011-2012 was entirely expected primarily because of the low employment growth between 2004-2005 and 2011-2012.
Advisory Committee on National Accounts Statistics has also given a go ahead to the new back-series data as it allows better comparison and forecasts.

Way Ahead:
• The statistical challenge before the CSO is to estimate the GVA that remained uncaptured by the ASI. For this, there is a need to use better statistical tools and other databases like the Labour Bureau Surveys.
• In the long run, India needs to invest more in data collection and integration and do informal sector surveys more frequently to ensure that CSO retains its global reputation of giving out impeccable growth rate estimates.