At it yet again! The sequencing problem in setting a base year for GDP

A decision on a new base year to calculate India’s Gross Domestic Product (GDP), instead of the current 2011-12, may be announced only after the National Statistical Commission (NSC) is reconstituted.

The term of the current NSC got over in July this year. The change in how GDP is measured significantly impacts all economic data to analyse the health of the economy. However, the new timelines mean the exercise will be completed after the general elections are over in May 2024.

The formal decision will be taken by the advisory committee on National Accounts Statistics (ACNAS), which includes NSC members, members from the Reserve Bank of India (RBI), the ministries of finance, corporate affairs, agriculture, NITI Aayog and also some state governments, besides independent statistical experts from organisations like the Indian Statistical Institute.

An informed source said the outgoing NSC had suggested making 2018-19 the new base year. It had also recommended making the base year for the other key economic indices like consumer price inflation and the index of industrial production, co-terminus with the GDP year.

However, former secretary of the Ministry of Statistics and Programme Implementation (MoSPI), within which NSC operates, Pravin Srivastava suggested a method of faster revision of the base year, known as the chain base method. This allows for the addition and deletion of economic activities each year, doing away with the need for setting a base year. It is a costly undertaking and consequently only used by several Organisation for Economic Co-operation and Development (OECD) countries. Because of the sensitivity of the issues, none of the officials was willing to go on record.

The ministry, under GP Samanta, who is also the ex-officio chief statistician of India, has constituted an internal committee to examine the options including that of setting a post-Covid year as the base year. Those recommendations will be presented to the new NSC.

Post General Elections

Another high-level source in the government said the current datelines imply the GDP changes will happen only after the general elections of 2024. This is also reflected in the financial projections for FY24 made by the ministry, which account for no corresponding expenditure to finance the work on the switch in the base year.

"The ACNAS had agreed that several data including the census, consumption survey and others have to coincide in a normal post-Covid year, for the revised GDP base year to be correctly comparable", said NR Bhanumurthy, vice-chancellor of Dr B R Ambedkar School of Economics University, who has been in several of the key government committees on statistics.  

The government is therefore prioritising the work on these statistics. The timeline for completing the decadal census has been pushed back from 2020-21 due to Covid. This work is handled by the home ministry and discussions are still on whether there is a window in early 2023 for completing the census enumeration.

The ministry of statistics is involved in completing the next Seventh Economic Census that enumerates the number of enterprises in India, and the Household Consumption Expenditure Survey, both by early next year. Those results too, have to be placed before the NSC for approval before they can be made public. The results of the last Consumption Expenditure Survey were never released officially, even though in a Parliament reply, the ministry noted that a rigorous procedure for vetting data and reports was followed to examine the data generated through the survey.

“It was observed that there was a significant variation in the levels in the consumption pattern as well as in the direction of the change while comparing with other administrative data sources….and it was decided that the results of CES 2017-2018 would not be released”, the reply added.

Work on the next Household Consumption Expenditure Survey began in July 2022. A ministry official said the actual fieldwork is likely to be launched after the completion of the training of enumerators. It has been decided that the survey period will be of one year. Unlike the last survey, there shall be three visits by the enumerators using Computer Assisted Personal Interviews. For the first time, it will capture information on the number of items received free of cost under the various government-sponsored social welfare programmes.

These steps will connect the survey with the changing consumption pattern of the consumers, almost every quarter. Plans are also afoot to use big data like those from GSTN and the National Health Authority. “But the ministry is not equipped to handle these scale of changes. We might be better off setting up a government-run corporation to undertake the job”, said a source connected to the exercises.

Only when the survey work on CES is over can the revision of the Consumer Price Index (CPI) be taken up. The current CPI with the base year 2012 rides on an even earlier Consumer Expenditure Survey data of 2011-12 (68th Round of NSS). A ministry official explained, “any partial or ad hoc change in the basket or in the weights is neither theoretically suggested nor practically feasible. This is the methodology followed globally”.

In all these series of activities, the role of NSC is crucial. It acts as the governing council for the National Statistical Office, formed by merging the Central Statistical Organisation and the National Sample Survey Organisation. It also addresses questions about all key statistical issues the government refers to, besides developing the competency of the data system of the economy. The outgoing commission was chaired by Bimal Kumar Roy, head of the R C Bose Centre for Cryptology & Security at the Indian Statistical Institute in Kolkata. The Commission was set up in July 2019, for a period of three years and included, other than Roy, three members. The search committee for the NSC is on task. The authority to form the search committee that was earlier with the ministry was changed in 2018 to vest the role with the government of India, generally. 

Alignment concerns

As Bhanumurthy explained, the revision in the GDP base year will depend on how fast the sequence of the Census, the CES and then the CPI are lined up.

The base year of the GDP Series was revised from 2004-05 to 2011-12 with the new data series released in January 2015. When the numbers were released, they attracted immediate controversy since there was a change of government at the centre in 2014. Based on the new series, there was a recasting of the GDP of the previous years. In subsequent years the old and the new series became fertile grounds to compare the performance of the UPA and the NDA governments. 

At a larger level, updating GDP data is essential to monitor India’s progress in attaining targets like the SDGs. The ministry has, for instance, formulated a National Indicator Framework to monitor these goals, which requires significant data to flow from the field formations and requires extensive use of technology. It also requires continuous involvement of state governments.