Along With the Base-Year Revision of GDP, We Need Transparency
The Union government is in the process of revising the base year of Gross Domestic Product from 2011-12 to 2022-23. Due to the complexity and enormity of the exercise, the revised series of data will only be made available on February 27, 2026.
A discussion was organised on 'GDP Base Revision: Time to regain confidence' on June 16 at the India International Centre, in New. Delhi. The thrust of the discussion was to explain the methodologies adopted and the datasets utilised to estimate the Gross Value Added and the GDP.
There are several concerns about the reliability of certain aspects of the 2011-12 series. The weakest area in the existing data system is the informal (or unorganised) segment of economy which contributes nearly one-third of non-agriculture GDP. For this segment, the estimates are generally prepared using what is known as the labour-input method for the base year, which are moved for subsequent years as per indicators like past trends, relevant corporate growth, volume index and so on.
Categories
For the purpose of surveys, enterprises are classified into two broad categories. One is the Own Account Enterprises (OAEs) i.e. those enterprises that do not employ hired workers on a fairly regular basis and the other is Establishments employing at least one hired worker on a fairly regular basis. Within the latter, enterprises employing six or more workers are categorised as Directory Establishments (DEs).
In the 2011-12 series, base-year estimates of unorganised segments of Trade, Hotel and Restaurants, Telecom, Education, Health and many other sectors may have been estimated using a visibly higher GVA per worker of Establishments in rural and even DEs in urban areas. A logic used was that “most of the establishments in urban areas are Directory Establishments, employing 6 or more workers”.
The trade DE constituted amongst market units – merely 2.1% in number in the 67th (2010-11) round of the National Sample Survey Office's survey used in the base-year compilation of 2011-12. Almost similar was the structure of Trade Establishments (constituting 5.8%) in rural areas.
The GVA per worker of urban Trade DEs was more than 2.4 times that of OAEs even though the latter accounted for more than 77% of enterprises. So it is quite feasible that the overall GVA in several unorganised sectors may have been over-estimated owing to use of only DE data.
Unorganised sector
Another issue is whether the indicator-based growth of the unorganised sector is being overestimated, resulting in higher growth of GDP. It is observed that the growth rate reflected by the relevant NSSO surveys was much lower during 2015-2022 than that reflected in the national accounts in Trade, Hotel and Restaurant, Health and Education. In all these sectors, a fixed or corporate sector growth is being applied to the unorganised sector also.
Another area of concern is the owner-occupied dwellings, constituting almost 6% of the GDP. This is based on the 2011 census. Since no recent data of census is available, the new base year may have to use projections which may again turn out to be inaccurate when the new census results are released in 2027.
Another example of possible over-estimation of GDP is the share of the informal segment in the Communication sector. As per official GDP data, it has increased to 7.8% in 2022-23 from 5.9% in 2011-12. It is well known that one of the major generators of revenue in the unorganised telecom sector was through the Public Call Office (PCO). Their number has been consistently and significantly declining – from 2.01 million in 2012 to 1.76 million in 2013 to 30,563 in 2023 and merely 15,374 in 2024. So, the increase in the share of the informal segment of the communication sector needs explanation.
We hope that the new series will address this anomaly.
Buildings
In the Construction sector, pucca construction accounts for nearly 90% of total activity. Its GVA is estimated as a fixed proportion of the value of the construction materials (steel, cement, bricks, timber, bitumen and so on).
This may also require a re-examination as there are changes in the mix of types of buildings, techniques of construction, productivity and inventories of building materials. Surprisingly, when the public and private corporate sector are practically on a construction spree – be it highways, airports or other infrastructure projects, the unorganised segment has grown relatively faster since 2011-12 as its share in construction has grown from 76.4% to 78.9% in 2022-23.
Whether it is a reality confirmed by data or just the consequences of residuality inherent in the present methodology followed needs to be looked into by expert committees going into the revision of base year.
In case of agriculture, a recent article by Jean Dreze and Christian Oldiges highlights the large gap between the cereal production (304 million tonnes in 2022-23) and authors’ estimates of all its known uses (at most 235 million tonnes). High cereal inflation in recent years, despite the ban on exports and stock limits needs to be better understood and explained.
Data sets
The Ministry of Statistics and Programme Implementation, being a user of many datasets originating from states but mostly exercising no qualitative checks, may do well to take outside expertise in addressing the anomalies highlighted above.
There is sufficient information on the possible drawbacks of using MCA-21 data for estimating the growth of even the organised sector. The MCA-21 is an e-governance initiative of the Ministry of Corporate Affairs or MCA. For example, the mismatch of actual and recorded activity, instances of non-traceability of units at the address provided, weak correlation between the actual production and the paid-up capital across sectors, are too well known to need reiteration. MCA-21 data set, undoubtedly a mine of details, requires a holistic and critical relook for its statistical utility for GVA estimation.
The issue of palpably misconceived deflators is equally important. For instance, for deflating wages and salaries in the public administration, Consumer Price Index (General) was adopted in 2011-12 base year, deviating from the erstwhile practice of using Consumer Price Index (Industrial Workers). It is known that government employees are compensated for dearness, as per CPI(IW), regardless of sector in which they are working.
In fact, in GVA from public administration, more than 80% comes from compensation of employees, which has grown more than 75% in real terms during 2011-2022. The real growth in this item may come largely from additional employment. But employment under government is perceived to have declined or remained stagnant at best. In any case, even after accounting for increases due to the Seventh Pay Commission, as well as higher longevity or minor additions in government employment, the increase is too high. This also needs to be better explained.
Reliability
In order to regain confidence in India’s economic growth, it is necessary that its statistical system is transparent and reliable. MoSPI therefore needs to share the lessons learned in adopting alternative methods and datasets used in the 2011-12 base change. It must elucidate on the steps proposed to avoid similar pitfalls this time.
Now that several states have also announced ambitious targets of trillion-dollar state economies, there is a fear that bureaucratic machinery may be asked to manufacture data whose reliability is questionable.
It is admirable that in the last one year, MoSPI has initiated interactions with user bodies. It is nevertheless germane that no confidence building measure would be as effective as sharing the exact and detailed methodology as well as the attendant micro-data. But in a worrying development, MoSPI’s draft dissemination policy of data, circulated in January 2025, envisages that access to microdata will be subject to the ministry’s satisfaction while so far, approval of the ministry was not required and the data was made accessible on a simple request.
Indian economy has witnessed several significant changes since 2011-12. These include enormous success with digital services, gig work, quick delivery of household goods, online shopping and new consumption patterns. We hope that the new series will suitably incorporate these developments.
Sanjay Kumar and N.K. Sharma retired as Additional Director General and Director General respectively from the National Statistics Organisation.
Siraj Hussain is former Union agriculture secretary.
The Wire is now on WhatsApp. Follow our channel for sharp analysis and opinions on the latest developments.
