Why economy shrank despite the inclusion of more sectors

  • HT Correspondent, Hindustan Times, New Delhi
  • Updated: Feb 02, 2015 00:43 IST

India’s new method to calculate gross domestic product (GDP) has marginally reduced the economy’s size by Rs 10,000 crore. This is primarily because the data relies on value added at various stages of the production chain rather than a totalling up of expenditure at the final point of sale or consumption at a new “base price”.

The new data covers everything from farm-level livestock to mega infrastructure projects and trendy smartphones to capture activity across the economy, but rules out duplication of repeat accounting of the same activity even it factors in new data on output and spending of under-represented items.

According to the latest method, India’s GDP at current market prices (2013-14) is valued at Rs 113.45 lakh crore against Rs 113.55 lakh crore in the old data series.

This is also true of the previous two years with GDP at current market prices for 2011-12 under the new series valued at Rs 88.32 lakh crore, down from Rs 90.09 lakh crore according to the old series, and Rs 99.88 lakh crore for 2012-13 compared to Rs 101.11 lakh crore earlier.

Under the new method, India has changed the “base year” from 2004-05 to 2011-12, and it now includes a new basket of goods to factor in structural changes in the economy, and presents a more realistic picture of current macroeconomic aggregates.

“The difference in the market prices of GDP is the highest for 2011-12, mainly because the base has moved to that year. Part of the difference in the GDP values because of the change in the base year persists through to 2013-14,” Pronab Sen, chairman, National Statistical Commission, told HT.

For example, in the new data series, imports were valued at Rs 31.90 lakh crore during 2013-14, lower than the previous estimates of Rs 32.26 lakh crore, primarily because the new values are worked on a base price of 2011-12, instead of 2004-05 prices.

“When constant price GDP is re-based we need 5-10 years of backward data to determine growth trends as per the new series,” former chief economic adviser Arvind Virmani said.

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