Changes in GDP Data Can Impact Many Things

Chennai: The GDP base year is being revised from financial year 2011-2012 to 2022-23 and the revised series will be released on February 27. The previous revision of base year in 2015 as well as the back series revision thereafter had become quite controversial. In this context, JB Mohapatra, former chairman of Central Board of Direct Taxes, elaborates the discrepancies in GDP calculations and the importance of having robust data.

Q) How important is it for the country to have robust data, especially robust and accurate GDP data?

GDP as a concept and as a term does not explain many things. It does not spell out the standard of living, the quality of life, does not factor in environmental issues, it does not account for unaccounted economy, underground economy as they say, it does not account for household labour, work etc, it does not account for volunteering activities. It doesn't account for many things, but it has got its own relevance.

GDP per se can only mean a number, but with other factors, it has got a lot of meaning and relevance for everybody. For the government and for the people, it may mean setting out the right monetary policy, setting out the right fiscal policy, setting out the priorities in your budget, it can set out the taxes and policies. It can tell businesses where to invest, what are the opportunities. It can tell investors how to invest and how to exit from investment. It means many things to many people and It holds the greatest significance for the government. because that is a policy setting document.

Q) Why are there a lot of apprehensions about the new revision of the base year? What are the changes being made in the calculation of GDP in the new revision? And how will these changes help us capture the data better?

GDP base year change normally, India follows a 10-year cycle. The last revision was in 2011-12. Now again it will be in 2026, base year being revised to 2022-2023. Revision of the base year is actuated both by the requirements of the UN and also by external agencies like the IMF. In the IMF's November 2025 consultation paper, was advised very clearly that India's national accounts on the questions of materiality, on the questions of granularity, on the questions of timelines are good to go. But when it comes to coverage, it has got a C rating.

C rating means it has got weaknesses, methodological weaknesses, which are hampering surveillance. So, that is the reason why the changes to the base year has happened and along with the changes in the base year many other things also are being rolled into this particular revision. The base year will change and the new data sets from the recent surveys will be taken. A larger sectoral spread will get into the data construction. Then informal sector tracking and tracing and valuing the informal sector in a more scientific manner is also one of the purposes of the recent revision and the use of an accurate deflator. The deflator you know when we get from the nominal GDP to the real GDP, we create a deflator. So, in India, the deflator is basically WPI. WPI is said to be very commodity-heavy. Finding out the real producer parity index that PPI that is one thing which must be created. So, this revision also will consider the finding out the right deflator and whether single deflation or a double deflation will be required both at the input and output levels.

Q) The release of the back series GDP data thereafter had become controversial. Can you briefly explain the main objections that were raised about these revisions in 2015 and thereafter?

The back series issue will always remain, when you are getting to new data sources, new data sets. There will be difficulty in comparing one period to the another. This was done in the middle of a new regime which has come in. So, there are many political angles to the efforts by the government to change the back series data based on new parameters right. So, what was done is basically changes in the weightage of many of the parameters in the primary sector, in the tertiary sector and in the secondary sector of the economy.

But now, the political regime has not changed. So, there will be no such allegations. The compelling reasons as to why the revision is being carried out because of the misrepresentation of the organized sector and the extensive discrepancies in the data between the production method and in the expenditure method to determine GDP These are compelling reasons as to why we need to have a new series of you know GDP starting from 2022-23.

Basically, discrepancies will come out because national accounts will insist on two methods to arrive at the GDP. One is the production method, or the factor cost method and the other one is the expenditure method. In the production or factor cost method we look at the annual value increase in some of the sectors - important sectors of the economy - forestry or fishing or mining or manufacturing or all travel or electricity or gas or water or utility, then travel and transport, finance etc. Then we look at quarter to quarter increase, then we predict that this would be the GDP for the current quarter or the current year. In the expenditure side, you just sum up the domestic consumption, the government's consumption, fixed capital formation and the net exports.

As the GDP is being determined under both very separate methods, sometimes there is a gap. Sometimes the gap becomes large because of basically to me assumptions about the informal sector. If you assume if you give an assumption to the informal sector and the assumption is not right, then there will be a mismatch.

So, the IMF has also said that the supply and use framework has to be strictly followed, so that we will not have a very large mismatch.

Q) Talking about the informal sector, what is the methodology used to estimate the gross value added from the informal sector? Now, everyone knows that a lot of data is not available about the informal sector. What is the methodology used after demonetization and GST implementation? These two events had actually hit the informal sector more than the formal sector. Do you think the extrapolation of data has been accurate after these two events?

I agree that the tracking and tracing the unorganized unincorporated sector is one of the most difficult tasks because they are not in the regulatory zone. In 2011 is to find out a benchmark indicator method which was done in 2011 using effective labour input. and this GVA per worker, which was constructed in 2011, you multiply by the total number of workers under the employment and unemployment survey. Determining GVA for subsequent years you have extrapolated growth proxies taken from the formal sector. But the formal sector responds to situations very differently than the informal sector. Formal sector survived the COVID, formal sector survived the GST you know turnaround, formal sector will survive many things. But the informal sector crumbles and responds very differently to situations of a boom or a bust.

Further, GVA of the informal sector extrapolates productivity from 2011 that productivity will keep on changing right. You cannot extrapolate the productivity of a formal sector to the productivity of the informal sector.

Now they will be using ASUSE - the annual survey of the unincorporated sector enterprises which will tell you about the performance of the unorganized sector. Also use the PLFS that will tell you about the trend in the employment in the unorganized sectors. So, multiply the GVA which you get from ASUSE data set. with the PLFS or worker number, then you come to a reasonable construct of the informal sector's output.

Q) But if you remember during the demonetization GST times, the employment surveys also were not happening. We had a long gap. So, will we be able to make up for that gap in these surveys? Will the data be accurate?

PLFS and the ASUSE will be the linchpin of informal sectors GDP determination. So, I believe that better surveys, better quality surveys and systematic timely surveys will be very important in tracking the informal sector's GDP.

Q) And what about Census? We haven't done Census for a long time.

That will impact. Along with the GDP revision, we are doing the CPI and also the IIP. So, all these revisions are happening at one time, but the census data will be the main primary data with regard to numbers. We will get a better scientific idea on our GDP, even borrowing from the census data.

Q) Do you think the budget estimates will that get affected because of the new data? Now the new data is coming after the budget.

If the GDP is greatly disturbed, the numbers are greatly disturbed. In the allocation of funds to the states there could be issues. If they change drastically, then the central allocation to the states also may be reallocated or there is a chance there is a potential of reallocation of the central allocation to the states in some manner the central grants etc.

If the GSDP of a state changes, its borrowing powers under the FRBM also will change. So, that also may get affected. Changes in the GDP will trigger many changes, many aftereffects not just in budget, but in many other areas and those areas we do not know for sure at this point in time.

Q) What are your suggestions to make in order to have robust data of GDP so that we could probably have a better policy?

As we move technology upwards, businesses and households will get formalized. The tax filer number which was 3 crore in 2014 is 9 crore in 2026. In 12 years, it has jumped threefold. Formalisation will happen, and is happening across all regulatory landscapes. The age-old methods of survey, which are time-consuming, has got off latency and also chances of duplication. The data collection if it can be relied on through the government backed government supported databases for example, the GSTN, the income tax database, VAHAN, the PLFS for the government of India's public fund management system are great repositories of financial data. So, if we can leverage the government's financial and statistical databases with regard to expenditure with regard to investment that can ease data collections in a much better manner. We must also try to achieve greater granularity in the data collection. As we get more sophisticated in our approach of data collections, things will get better and GDP will become more credible, more strong and will be supportive of the government's policies.