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Govt to Revise GDP Base Year to 2022-23
Context:
The Indian government is set to revise the base year for calculating GDP to 2022-23, replacing the current 2011-12 base year.
- This move aims to present a more accurate depiction of the country’s economic dynamics.
- The update comes amid concerns about slowing GDP growth, which dropped to a seven-quarter low of 5.4% in Q2 FY25, affected by tepid consumption demand and a weak mining sector.
About the Change:
What Is a Base Year?:
A base year is a reference period used to measure changes in economic variables such as GDP and inflation.
- It serves as a benchmark, holding values constant to facilitate comparison across different years.
- Regularly updating the base year ensures that economic data reflects prevailing conditions rather than outdated realities.
- The Ministry of Statistics and Programme Implementation (MoSPI) announced that the new base year will be adopted in February 2026. The 26-member Advisory Committee on National Accounts Statistics (ACNAS), chaired by Biswanath Goldar, will oversee the transition and is expected to complete the task by early 2026.
- This revision will incorporate changes in economic structure, consumption patterns, and sectoral contributions to ensure the GDP calculation reflects the current economy.
Rationale for the Change:
- Aligning with Structural Change: Economic systems evolve with time, leading to shifts in consumption behavior, sectoral weightage, and the emergence of new sectors. Regularly updating the base year ensures GDP estimates remain aligned with these structural changes.
- Relevance for Policy Decision: By adopting 2022-23 as the base year, the government aims to modernise GDP computation, making it more relevant for policy decisions and international comparisons.
GDP Base Year Change as Part of Larger Overhaul:
The base year revision is part of a broader initiative by the government to improve statistical systems. Other significant measures include:
- Monthly PLFS Data: Starting January 2025, the government will release monthly Periodic Labour Force Survey (PLFS) estimates, providing more frequent insights into employment trends.
- Economic Census: MoSPI plans to initiate an updated economic census to gather comprehensive economic data.
- Standardised Data Governance: Efforts are underway to promote uniform data governance and harmonised quality reporting across the National Statistical System.
Indicators Affected by GDP Base Year Change: Updating the GDP base year impacts key indicators-
- Wholesale Price Index (WPI): Revised weights for commodities will better reflect current market realities.
- Consumer Price Index (CPI): Adjustments to track shifting consumption patterns.
- Sectoral Contributions: Changes in sectoral weightage to include emerging sectors and reduce outdated biases.
- Policy Metrics: Improved accuracy in policy planning and fiscal projections.
Allegations by Opposition on Base Year Change: Opposition parties have raised concerns over the timing and motives behind the base year revision. Allegations include:
- Political Manipulation: Critics claim the change is aimed at inflating GDP growth figures ahead of upcoming elections.
- Transparency Issues: Questions about the independence of data collection and processing have been raised.
- Undermining Comparability: Opposition voices argue the new base year will disrupt trend analysis, making comparisons with historical data challenging.
Challenges in Implementing Base Year Change: The transition to a new base year is not without hurdles-
- Data Collection Gaps: Resistance from affluent neighborhoods and other demographic groups poses challenges to survey participation.
- Sectoral Realignment: Integrating new sectors and updating weights for existing ones requires extensive effort and validation.
- Coordination Among Stakeholders: Harmonising inputs from states, the Reserve Bank of India, and academic experts involves intricate coordination.
- Maintaining Consistency: Ensuring comparability with past data while adopting modern methods is a delicate task.
