NEW DELHI: In a radical change, the federal government is contemplating transferring to the chain base methodology of calculating gross home product, from the present apply of a hard and fast base 12 months to higher mirror modifications within the financial system and stop controversies.

The ministry of statistics and programme implementation is exploring the concept of a series base index, the place nationwide account statistics or GDP estimates are in contrast with these of the earlier interval, as a substitute of a hard and fast base revised each 5 years.

The chain base methodology will seize structural modifications within the financial system quicker by permitting new exercise and gadgets to be added yearly. Present GDP estimates are primarily based on knowledge for 2011-12 and are due for an replace.

“That is the worldwide apply – first cut back your timeline from a 10-year revision to a five-year revision, which we shifted to however the excellent is yearly. This improves the indicator,” mentioned an official conscious of the event.

“The benefit is that new gadgets and factories that are producing will be launched. In a five-year revision, it takes 7-Eight years to get mirrored.”

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Whereas discussions on modifications are on, no timeframe has been set for a shift. The statistics workplace junked the concept of shifting to 2017-18 as base 12 months because it was not thought of a traditional 12 months.

The federal government confronted flak when the GDP Collection was revised to 2011-12 from 2004-05 and launched in 2015 and attracted criticism after GDP development for FY17, the 12 months of demonetisation, was revised to eight.2% from 7.1%. Apart from the brand new base 12 months, the methodology was modified to seize info on the company sector from the ministry of company affairs MCA-21database.

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CHAIN-WEIGHTED FROM FIXED BASE
The US shifted to the chain base or chain-weighted index in 1996 and different developed international locations adopted. Most often, the shift resulted in vital modifications within the numbers of the previous 12 months, indicating the higher end result produced by this methodology.

In a hard and fast base index, weight assigned to numerous financial actions and items stays unchanged even when the financial system modifications structurally. Apart from, this methodology doesn’t consider relative modifications in costs and impression on demand.

In a chain-weighted index, modifications are integrated yearly to regulate modifications rapidly. As an example, it may be argued that present GDP statistics don’t totally seize India’s gig financial system.

“With 60% of India’s GDP coming from companies, a series primarily based index will seize the modifications quicker and mirror the realities higher than a hard and fast base. Most developed international locations, together with the US and people in Europe, comply with this apply,” mentioned a former member of the Nationwide Statistical Fee.

Such an index will make it simpler to match India’s development with different international locations, mentioned Abheek Barua, chief economist at HDFC Financial institution. “Consequently, taking selections on investments and fund flows, the place differentials are involved, would grow to be rigorous,” Barua mentioned.

“This needs to be finished quickly however the issue is of inter-temporal comparability as a result of now we have by no means used chain-based index earlier than,” mentioned former chief statistician Pronab Sen.

CHALLENGES

The shift would require significantly better knowledge assortment with fast addition of latest companies, items and institutions. This may impose a burden on the info assortment equipment in addition to the respondents. “If you’d like frequency, you must cut back the respondent burden and should should compromise on the main points,” the official mentioned.

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NOMINAL CONCERN

As per Sen, whereas the transferring index will present development nearer to the nominal quantity, its distinction from actual development would rely on weights assigned to parts.

“The issue is that the federal government doesn’t have quantity knowledge for the earlier 12 months. Nevertheless, this may be overcome by utilizing weights which are a 12 months older. Chaining means mounted frequency. So, they’ll repair weights,” Sen mentioned.

“It must be seen if development charges within the chain-based index are nearer to nominal or actual as a result of it’s not vital if it creates a differential,” mentioned NR Bhanumurthy, professor, Nationwide Institute of Public Finance and Coverage.