Overhauling India’s GDP Estimation Framework: Key Changes with 2022-23 Base Year
Overhauling the GDP Estimation Framework
Introduction
India is set to revamp its Gross Domestic Product (GDP) estimation framework as the Ministry of Statistics and Programme Implementation (MoSPI) prepares to shift to a new base year of 2022-23. This will be India’s eighth major GDP revision since 1948-49, with the current base year being 2011-12.
This overhaul is not just a routine update—it reflects the need to capture India’s rapidly changing economic structure, driven by digital services, fintech, the gig economy, and evolving consumption patterns.
What are the Major Changes Coming with the Upcoming GDP Estimation?
The proposed methodological overhaul introduces several key changes to modernise India’s national accounts:
- Adoption of COICOP 2018 for Private Consumption: The government will shift from COICOP 1999 to the updated COICOP 2018 (Classification of Individual Consumption according to Purpose) for categorising household expenditure. This change will reclassify items to reflect modern consumption patterns.
- For example, tailoring services will now be included under “Clothing and Footwear,” and electrical fittings like power sockets will move to “Housing, Water, Electricity, Gas, and Other Fuels.”
- Reduced Reliance on Commodity Flow Approach: The current series heavily depends on the commodity flow method (estimating consumption based on domestic production, imports, and exports) for many items due to data gaps. The new methodology will pivot towards greater use of:
- Household Consumption Expenditure Survey (HCES) data.
- Administrative data (e.g., E-Vahan for vehicle registration).
- Targeted studies (e.g., on milk utilisation and road transport).
- The commodity flow approach will be retained for only 34 items, but with dynamic, updated rates and ratios.
- Integration of Supply and Use Tables (SUTs): A major systemic change is the integration of Supply and Use Tables into the annual accounts compilation process.
- SUTs provide a comprehensive matrix showing how goods and services are supplied (by domestic industries and imports) and how they are used (in intermediate consumption, final consumption, investment, or exports).
- This integration aims to minimise and eventually eliminate statistical discrepancies between GDP estimates from the production and expenditure sides, ensuring internal consistency.
- Shift to a New Base Year (2022-23): Rebasing to a more recent year (from 2011-12) will update the weights assigned to different sectors (like services, manufacturing, agriculture) in the GDP calculation, ensuring they reflect the current economic structure more accurately.
Why is this Overhaul Essential?
The revision of the GDP series is a critical statistical exercise for several reasons:
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Capturing a Transformed Economy:
The Indian economy has undergone profound changes since 2011-12, with the rapid growth of digital services, fintech, gig economy, and changes in consumption baskets. The old classification (COICOP 1999) and outdated sectoral weights fail to accurately represent these new economic activities. The overhaul ensures GDP reflects the true structural composition of today’s economy.
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Improving Accuracy and Reducing Discrepancies:
Heavy reliance on the commodity flow method and the persistent “statistical discrepancy” in expenditure estimates have been points of criticism. By incorporating more direct data sources (surveys, admin data) and integrating SUTs, the new methodology aims to produce more robust, reliable, and reconciled estimates, enhancing the credibility of India’s economic data.
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Enhancing International Comparability:
Adopting the latest UN standard (COICOP 2018) aligns India’s national accounts with global best practices. This allows for more meaningful comparisons of India’s economic indicators—like consumption patterns and GDP growth—with other major economies, which is crucial for global investors, policymakers, and institutions like the IMF and World Bank.
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Informing Evidence-Based Policy:
Accurate GDP data is the bedrock of sound economic policy. A more precise measurement of consumption, investment, and sectoral outputs enables better fiscal planning, monetary policy decisions, and targeted interventions for growth and welfare. It helps answer critical questions about the post-pandemic recovery, the efficacy of government schemes, and the drivers of economic growth.
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The Source’s Authority and Ownership of the Article is Claimed By THE STUDY IAS BY MANIKANT SINGH
