New GDP series to align with internationally accepted methodology 12/08/2019 – Posted in: Daily News, EDITORIALS – Tags: , , ,

NEW GDP SERIES TO ALIGN WITH GLOBAL METHOD

 

For: Preliminary & Mains

Topics covered: New GDP series, Linked back-series method, Splicing method, GDP, MCA-21, Methodology for compiling back-series estimates

 

News Flash

The government has turned out with a linked back-series of India’s growth numbers from 1950-51 to 2003-04, with 2011-12 as the base year, to adjust gross domestic product from past years with the new globally/ internationally accepted methodology and facilitate comparisons.

Whenever a new series of National Accounts Statistics is introduced with an updated base period, it is customary to link the old series to the series on the new base period.

 

What

  • For the years prior to 2004-05, the estimates were compiled by adopting the splicing method, retaining the same growth rates of aggregates as in the old series.
  • This is part of our mandate to bring out the entire back-series using a linking factor. This helps in bringing continuity.
  • It will help compare recent GDP growth over a long series since the new system revised the base year from FY05 to FY12 and changed the methodology and sources of data collection.
  • The linked series has come at a time when the government has faced flak for revising GDP data under the new series. One such case was the sharp revision in GDP growth for FY17, the year of demonetisation, from 7.1% to 8.2%.

 

Splicing method

Organization for Economic Co-operation and Development definition, In an index number it may become necessary at certain times to make provision for the appearance of new items or the disappearance of items previously in use, e.g. in price index numbers, when commodities go off the market. The method of affecting the change is known as splicing.

The Splicing method has been applied for preparing the estimates in construction sector entirely and applied partially in agriculture and allied sectors, gas, trade, repair, hotels and restaurants, real estate, ownership of dwelling and professional services, public administration and defence and other services.

 

MCA-21

  • The current series uses the MCA-21 database, which stabilised only after 2010-11.
  • MCA-21 is a government portal that allows electronic filings of various documents under the Companies Act and that data is used in GDP estimates.

 

Background

The new GDP series was announced in 2015 with 2011-12 as the base year. At that time, they had revised the series from 2012-13 onwards.

Since then, all GDP data, whether quarterly or annual, have been based on the new series. This new series is globally more comparable as it takes into account a far greater representation of the Indian economy and is more reflective of the real state of the Indian economy.

When it was released, it revised the last two years of the government (2012-13 and 2013-14). Curiously, at that time, the revision had made the GDP grow upwards.

So what was welcomed by UPA in 2015 is now criticized in 2018 because it got revised downwards.

 

Gross domestic product (GDP) is a monetary measure of the market value of all the final goods and services produced in a specific time period, often annually.

 

Methodology for compiling back-series estimates

  • Agriculture and allied sectors

For the back-series of crop, livestock, forestry and fisheries sectors; output and input have been recalculated as per the methodology adopted for the 2011-12 series.

 

  • Mining & quarrying

The Mining sector covers fuel minerals, metallic minerals, non-metallic minerals and minor minerals. The back-series estimates for the mining sector have been derived as sum of GVA of NDE, PC, and HH.

 

  • Manufacturing

The back-series estimates of GVA for manufacturing have been compiled by summing up the estimates from ASI quasi corporate (i.e. proprietary, partnership, HUF etc.), Private Corporate (PC), Departmental Enterprises (DE), Non-Departmental Enterprises (NDE) and the unincorporated segments, separately for each compilation category.

 

  • Electricity, gas, water supply and remediation

The GVA back-series estimates have been compiled using data from General Government (GG), DE, NDE, PC and Households (HH). The estimates of GVA for the GG and DE segments have been back-casted using splicing.

 

  • Construction

Back-series estimates of GVA for the construction sector at current and constant prices have been estimated by the splicing method.

 

  • Non-financial services sector

For the Services Sector, a mixed approach i.e. recalculation and splicing of GVA have been used. It has been tried to the extent possible that the same methodology, as that of the 2011-12 series is applied to the back-series estimation also. The total GVA has been derived as the sum of GVA of GG, DE, NDE, PC, and HH wherever applicable.

 

  • Financial services

In financial corporations, the constant price estimates are prepared by volume extrapolation. The volume parameters used in base 2011-12 and the back-series for the years 2004-05 to 2010-11 have been the same.

 

  • Public administration and defence

There has been no change in the estimation process for public administration and defence. The difference in the estimates in the new series are due to improved coverage of local bodies and autonomous institutions. For this component, the back-series estimates have been prepared using the splicing method.

 

  • Net Taxes

As per SNA 2008, in 2011-12 series, Taxes have been reclassified into Product, Production and Income & Wealth Taxes instead of Direct and Indirect Taxes. Similarly, Subsidies have been reclassified into Product and Production subsidies.

As per latest classification, Customs, Excise, Sales tax, Service tax and other indirect taxes like electricity tax, taxes on passengers and goods, taxes on vehicles etc. are part of product taxes.

 

  • Government Final Consumption Expenditure

The estimates of GFCE at current prices for the years prior to 2011-12 have been arrived at by splicing and the constant prices estimates have been arrived at by deflating the current prices using appropriate indices.

 

  • Private Final Consumption Expenditure

The estimates of PFCE for the years prior to 2011-12 both at current and constant price have been arrived at by using splicing technique.

 

  • Exports & Imports

The estimates of Exports and Imports for the back-series at current prices were taken as published in NAS 2014 and the constant price estimates have been arrived at using splicing.

 

  • GCF and Savings

In the new series 2011-12, GFCF comprises of four broad categories of assets as per SNA-2008 – (i) Dwellings, Other Buildings & Structures (DOBS) (ii) Machinery & Equipment (ME) (iii) Cultivated Biological Resources (CBR) and (iv) Intellectual Property Products (IPP).

 

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Source: ET

 

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