Q. Explain the difference between computing methodology of India’s Gross Domestic Product (GDP) before the year 2015 and after the year 2015.
Question from UPSC Mains 2021 GS3 Paper
Model Answer:
India’s GDP Calculation Methodology: Pre-2015 vs Post-2015
In 2015, India significantly revised its methodology for calculating Gross Domestic Product (GDP), marking a shift from the earlier system. This change aimed to align India’s national accounts with global standards and provide a more accurate picture of the economy.
Pre-2015 Methodology:
• Base year: 2004-05
• GDP calculated at factor cost
• Relied heavily on Annual Survey of Industries (ASI) data
• Limited coverage of informal sector and newer economic activities
Post-2015 Methodology:
• Base year updated to 2011-12
• GDP calculated at market prices, including indirect taxes and excluding subsidies
• Incorporation of MCA21 database, providing comprehensive corporate sector data
• Expanded coverage of financial sector, including stock brokers and mutual funds
• Improved estimation of informal sector activities
Key Differences:
1. Shift from factor cost to market prices: This change better reflects the actual market value of goods and services produced.
2. Updated base year: The new base year (2011-12) provides a more recent reference point for economic comparisons.
3. Improved data sources: The use of MCA21 database offers more accurate corporate sector information (e.g., IT services, e-commerce).
4. Wider coverage: Enhanced inclusion of informal sector activities (e.g., small businesses, street vendors) and financial services.
5. New methodologies: Adoption of advanced statistical techniques for data compilation and analysis.
Implications:
• The revised methodology generally resulted in higher GDP growth estimates.
• It provides a more comprehensive view of the economy, especially newer sectors.
• Improved international comparability of India’s economic data.
Conclusion: The 2015 GDP revision modernized India’s national accounting, offering a more accurate and globally comparable measure of economic activity.
