New Back Series GDP Data

What is the issue?

The Central Statistics Office (CSO) and NITI Aayog recently released the back series detailing growth numbers for 2005-06 to 2011-12.

What is the report on?

Back series calculations are done to link a new series of national accounts with an old series, for better comparison of growth over the years.
The Central Statistics Office (CSO) moved to a new base year of 2011-12 from 2004-05 for national accounts, in January 2015.
A back series GDP data report was earlier released by an expert committee set up by National Statistical Commission (NSC). Click here to know more.
There were differences of opinion on the methodology adopted for this calculation. Click here to know more.
So the final back series data is now jointly released by the CSO and NITI Aayog.

What led to the complication in the earlier report?

The CSO faced issues in evaluating GDP with the new base year for years preceding 2011-12 due to lack of availability of the MCA-21 database.
MCA-21 is an e-governance initiative of the Ministry of Company Affairs launched in 2006.
This was to allow firms to electronically file their financial results.
With the shift to the new base year 2011-12, the CSO did away with Gross Domestic Product (GDP) at factor cost.
It instead adopted the international practice of valuing industry-wise estimates as gross value added (GVA) at basic prices.
Also, the MCA-21 database got used in addition to

So the calculation methodology was questioned, and the government termed the committee report 'unofficial'.

What are the highlights of the new report?

The back series has trimmed the growth numbers for the UPA government’s two terms (2005-06 to 2008-09 and 2009-10 to 2013-14).
Indian economy growth is recorded at an average 6.7% in UPA’s first term as well as the second term.
[Significantly, these are lower than the earlier estimates of 8.1% and 7% respectively, with 2004-05 base.]
These growth rates compare with an average 7.4% (2011-12 base year) in the first four years of the present NDA government.
But the earlier report stated a faster growth under the UPA government from 2004-05 to 2013-14 than during the first four years of the current government.
The new back series data released for years preceding 2011-12 scaled down growth rates for 2005-06 to 2013-14 by 0.8 to 2.1 percentage points.
For 2012-13, with the new base year (2011-12), the GDP growth rate is revised upwards to 5.5% from 4.7% estimated earlier (2004-05 base year).
Likewise, for 2013-14, the GDP growth rate was revised up to 6.4% from 5% estimated earlier.
Sharp downward revisions were seen particularly for two years, 2007-08 and 2010-11.
For 2010-11, the growth got revised downwards from a double-digit rate of 10.3% to 8.5%.
The 8.5% cent growth in 2010-11 is the highest growth rate in the back series dating back to 2005-06.

What are the concerns?

Data - The CSO release mentioned usage of several proxies.
But there is not enough explanation for the choice of datasets and proxies, especially those datasets that did not exist before 2011-12.
E.g. For years preceding 2006, when the MCA-21 database did not exist, the CSO has used Annual Survey of Industries (ASI) data for estimating manufacturing growth.
But economists say there could have been other indicators for the same metric.
Calculation - The current series is based on company data, MCA-21, which is the balance sheet data (financial).
But the back series is based on volume data. E.g. the Annual Survey of Industries data for secondary sector
The key difference between the volume index approach and the financial data approach is that the financial data captures changes in quality which volume data does not.
So if a substantial part of the growth has been coming from quality, then the volume approach could have potentially underestimated growth.
Institution - The CSO comes under the Ministry of Statistics and Programme Implementation (MoSPI).
So the role of the NITI Aayog in the release of the statistical exercise has also been questioned as it goes against convention.

What could the implication be?

During earlier instances of backcasting of GDP data, the political environment was not as deeply polarised as it is now.
So the exercise remained more academic.
But the present data show that India never really grew in double-digits in 2010-11.
Also, India is projected not to be the high-growth economy in the five years preceding this as earlier thought to be.
It so happens that this period covers the two terms of the Congress-led United Progressive Alliance government.
The political influence in such professional data should seriously be taken note of by the policymakers, in long term interests.

Source: Indian Express, The Hindu