What is the issue?
- Presently the base year for most national statistics calculations is 2011-12.
- The Union ministry of statistics and programme implementation (MoSPI) has proposes to change the base year to 2017-18.
What parameters are likely to be rebased?
- MoSPI plans to rebase the calculations for the GDP, Index of Industrial Production (IIP), and the consumer price index (CPI) to the year 2017-18.
- These changes will be implemented in 2018-19 after the latest Employment Survey and Household Expenditure Survey are tabulated.
- Fiscal and monetary policies are both tied to changes in GDP, which provides the reference for all other variables such as revenue collections and deficits.
- IIP measures factory and mining output while the CPI is the official benchmark used by the RBI for assessing inflation.
- It is only normal practice to revise base years regularly for indexing key macroeconomic statistics to accurately reflect the changes in the economy.
What are the challenges with rebasing?
- Continuity - Base year revisions and changes in calculation methodology must be accompanied by backward calculations for better analysis.
- Without the back series (based on older methods), it becomes difficult to make substantial and meaningful assessments about the changes.
- However, the back series for the pervious base year revision was not released, which made credible trend analysis difficult for a while.
- Stable Referencing - If base year changes are brought about too frequently, they can also cause confusion and make it very hard to read economic trends.
- As this will distort our analysis of policy impact, there needs to be a rational and an apolitical logic in changing base years for better analysis.
- But the current proposal seems too early a revision, considering that many metrics were revised only recently.
- Recently Revised Metrics - The base year for GDP and wholesale price index (WPI) calculations was last revised in 2014-15 from 2004-05 to 2011-12.
- In fact, even the calculation methodology for GDP was radically changed and the data sample was greatly expanded to include more companies.
- The proportional weights of sectors and base year for IIP was revised even more recently, in 2017 (from 2004-05 to 2011-12).
- A new integrated Consumer Price Index (CPI) was also introduced to make it possible for the central bank to shift its focus for targeting inflation.
What is problem with choosing the base year as 2017-18?
- Traditionally, only normal years are identified for basing macroeconomic parameters, in order to avoid anomalies in trends and ensure credible analysis.
- Hence, while 2014-15 would’ve been an ideal year for such calculations, MoSPI’s proposal has chosen 2017-18, which is contentious.
- Notably, data for 2017-18 hasn’t even been finalised yet and it is also a year that had the lingering effects of demonetisation and GST disruptions.
- Hence, instead of making more changes to the base year, MoSPI should prioritise restoring credibility and comparability, through back series data.
Source: Business Standard
