Concerns on New GDP series

Data is the new oil in the modern networked economy in pursuit of socio-economic development. The economics now is deeply rooted in data, measuring and impacting competitiveness, risks, opportunities and social welfare in an integrated manner, going much beyond macroeconomics.

Growth story :The IMF now expects India to grow at 4.8 per cent this fiscal year, marginally lower than the 5 per cent projected by the National Statistical Office. 

Issue :GDP growth rates during the last few years may have been overestimated by 0.36 to 2.5 percentage points.

Also Recently The International Monetary Fund in its latest report has pointed out discrepancies in calculating deflation, which is used to convert GDP at current prices to constant prices

What is change took place in GDP? 

Two things changed in the new series, the base year as well as the database. Change of base year is a common occurrence and is done to take into consideration the changing times and the outlook of the economy. Therefore, the transformation of the base year is prepared keeping in mind the composition of the economy, and what it is producing. Also, change in a base year generally leads to a jump in the absolute number of the GDP, but we are typically concerned with the growing number, 

This doubts in  data on GDP became  a question after he new series of Gross Domestic Product (GDP) figures with 2011-12 as base, released in 2015, This happen becuase of following concerns :

1)The data on GDP are initially estimated at current price and then deflated for constant price for comparability of data over time. It is necessary to separate out price effect to adjust value for real volume for comparison over time and sectors. There is a way of adjusting price effect through appropriate price index

2)The present series encountered serious problems for price adjustment, specifically for the services sector contributing about 60% of GDP, in the absence of appropriate price indices for most service sectors.

3)The deflators used in the new series could not effectively separate out price effect from the current value to arrive at a real volume estimate at constant price. Price indices going into a low and negative zone in 2014-17 distorted real growth.

4)The shift from establishment to enterprise approach, replacing Annual Survey of Industries (ASI) with Ministry of Corporate Affairs MCA21 posed serious data and methodological issues. 

5)The approach for collection of data remains largely the same for long: price and production indices are constructed using a fixed base Laspeyres Index, example  yield rate for paddy is estimated by crop cutting experiments, and the organisation of field surveys for collection of data on employment-unemployment, consumer expenditure, industrial output, assets andliabilities continue. 

System of National Accounting

The System of National Accounting (SNA) is designed to measure production, consumption, and accumulation of income and wealth for assessing the performance of the economy.

GDP data influence markets, signalling investment sentiments, flow of funds and balance of payments. 

The input-output relations impact productivity and allocation of resources; demand and supply influences prices, exchange rates, wage rates, employment and standard of living, affecting all walks of life.

Wayforward :

Inorder to overcome the GDP series concerns, 

, we need data to assess competitiveness, inclusive growth, fourth-generation Industrial Revolution riding on the Internet of things, biotechnology, robotics-influencing employment and productivity, environmental protection, sustainable development and social welfare. Hence GDP data needs to be linked with a host of other data for deeper insight. 

We need to re-engineer the existing system, creating an integrated system populated with granular data. The country is vast, heterogeneous. There are non-linearities and path dependence, which should be considered while setting goals for development, reducing regional imbalance. 

To pursue the goal of a $5-trillion economy by 2024-25, harnessing demographic dividend, we must tap underused resources for demand creating investment, which require data to pursue policy right from a district and evaluate performance for efficiency including governance. 

Also  committees should have the support of a dedicated team for audit, and the ability to implement decisions by cutting red tape. Example :key recommendations of the Rangarajan Commission and subsequent recommendations from 2006 onwards by successive National Statistical Commissions, faced stumbling blocks in implementation. 

The initiative under e-governance enabled the capturing of huge data, which need to be collated for their meaningful use for production of official statistics. The process for collection and collation of data needs modernisation using technology.