Model Answer
0 min readIntroduction
Gross Domestic Product (GDP) is a crucial indicator of a nation’s economic health, representing the total monetary or market value of all final goods and services produced within a country’s borders in a specific time period. India’s GDP calculation underwent a significant revision in 2015, shifting from base year 2004-05 to 2011-12. This change wasn’t merely a statistical update; it reflected a fundamental shift in the methodology used to measure economic activity, aiming for greater accuracy and international comparability. The revision was undertaken by the Central Statistical Organisation (CSO), Ministry of Statistics and Programme Implementation.
GDP Computation Before 2015
Prior to 2015, India’s GDP was calculated using the base year 2004-05. The methodology followed was largely based on the recommendations of the National Statistical Commission (NSC) and involved a combination of the production, income, and expenditure approaches.
- Production Approach: Measured GDP by summing the value added in each sector of the economy (agriculture, industry, and services).
- Income Approach: Calculated GDP by adding up all the incomes earned within the country (wages, profits, rent, interest).
- Expenditure Approach: Determined GDP by summing up all the expenditures made on final goods and services (consumption, investment, government spending, and net exports).
The data sources primarily included the Annual Survey of Industries (ASI), the National Sample Survey Office (NSSO) surveys, and administrative records from various government departments. The calculation was largely based on organized sector data, with limited coverage of the unorganized sector.
GDP Computation After 2015
The revision in 2015 adopted 2011-12 as the new base year, aligning India’s GDP calculation with international standards. This change involved several key methodological shifts:
- New Base Year: The shift to 2011-12 reflected the structural changes in the Indian economy since 2004-05, providing a more accurate representation of current economic activity.
- Improved Data Sources: Greater reliance on data from the Ministry of Corporate Affairs (MCA) database, providing more comprehensive coverage of the organized sector.
- Expanded Coverage of the Unorganized Sector: Increased efforts to incorporate data from the unorganized sector, although challenges remain.
- Constant Prices: GDP at constant prices (real GDP) is calculated using the price levels of the base year (2011-12), allowing for a more accurate comparison of economic growth over time.
- Gross Value Added (GVA): The new methodology emphasizes GVA as the primary measure of economic activity, with GDP calculated as GVA plus taxes on products minus subsidies on products.
Key Differences: A Comparative Table
| Feature | Before 2015 | After 2015 |
|---|---|---|
| Base Year | 2004-05 | 2011-12 |
| Data Sources | ASI, NSSO, Administrative Records | MCA Database, ASI, NSSO, Administrative Records |
| Unorganized Sector Coverage | Limited | Improved, but still challenging |
| Primary Measure | GDP | Gross Value Added (GVA) |
| International Alignment | Less aligned | More aligned with international standards |
The shift to the new methodology led to a significant upward revision of India’s GDP growth rates for the period 2011-12 to 2013-14. However, this revision was also met with some criticism, with concerns raised about the accuracy and reliability of the new data sources and the potential for overestimation of economic growth.
Conclusion
The change in GDP computation methodology in 2015 was a necessary step towards aligning India’s economic statistics with international standards and providing a more accurate reflection of the country’s economic performance. While the new methodology has its strengths, ongoing efforts are needed to improve data collection, particularly from the unorganized sector, and to address concerns about the accuracy and reliability of the revised GDP figures. Continuous refinement of the methodology is crucial for ensuring that GDP remains a reliable indicator of India’s economic progress.
Answer Length
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