Article 1: New reality
Why in news: The new GDP series was introduced to update the base year to 2022–23, improve methodology, incorporate better data sources like GST, ASUSE, PLFS, and provide a more accurate, current picture of India’s economic growth and structure.
Key Details
- Base year revised to 2022–23 (from 2011–12), making GDP and GVA estimates more reflective of current economic realities.
- Methodological improvements introduced, including the double-deflator method, proportional allocation of multi-sector output, and greater use of GST data.
- Improved data sources such as ASUSE and PLFS will replace extrapolations, and better estimation methods will capture agriculture and the informal sector more accurately.
- GDP growth for 2025–26 projected at 7.6%, slightly higher than the 7.4% under the old series.
- Overall economic size revised downward to ₹345.47 lakh crore (about 3.3% lower), making fiscal deficit targets and the $5 trillion goal more challenging.
Release of the New National Accounts Series
- The release of the new national accounts data series marks a significant improvement in India’s economic statistics.
- However, the updated data also reveals certain policy concerns that require attention.
Update in Base Year
- The base year for GDP and GVA has been revised to 2022–23, replacing the earlier 2011–12 base year.
- The revision was long overdue, as the older base year had become increasingly outdated.
- Updating the base year ensures that economic data better reflects current production patterns and structural changes in the economy.
Methodological Improvements
- The new series incorporates enhanced estimation methods and improved data sources for greater reliability.
Double-Deflator Method
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- Adoption of the double-deflator approach separately adjusts inflation for:
- Intermediate goods
- Final products
- This improves the accuracy of estimating real value added in production.
Better Sectoral Allocation
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- Output of multi-sector companies is now allocated proportionately across sectors.
- This enhances sector-wise accuracy in economic measurement.
Improved Data Sources
- Household sector data will now be sourced annually from:
- Annual Survey of Unincorporated Sector Enterprises (ASUSE)
- Periodic Labour Force Survey (PLFS)
- Earlier, household data relied heavily on extrapolations.
- GST data, a rich source of consumption information, is now incorporated.
- New estimation methods are introduced for traditionally under-measured sectors:
- Agriculture
- Informal sector
- These improvements aim to provide a more realistic estimate of India’s economic size and growth.
Revised Growth Projections
- The new series projects GDP growth of 7.6% for 2025–26, compared to:
- 7.4% under the old series
- While the higher growth rate appears encouraging, the absolute size of the economy has been revised downward.
Revised Economic Size
- India’s GDP for 2025–26 is estimated at ₹345.47 lakh crore.
- This is approximately 3.3% smaller than estimates under the previous series.
- GDP for:
has also been revised downward by 3.8% each.
Implications for India’s Global Economic Position
- Due to downward revisions and rupee depreciation, India is currently a $3.8 trillion economy.
- The target of becoming a $5 trillion economy now appears more distant.
Fiscal Policy Implications
- A smaller nominal GDP makes it harder for the Centre to:
- Reduce the fiscal deficit
- Lower the debt-to-GDP ratio
- Since fiscal targets are expressed as a percentage of GDP, a reduced denominator makes targets more challenging.
Conclusion
- Although the revised data presents some challenges, it is preferable to:
- Align fiscal and growth targets with updated and accurate data
- Rather than continue relying on outdated economic metrics.
- The new series enhances statistical credibility, even if it demands more cautious policy planning.
Descriptive question:
Q. Discuss the significance of the revision of India’s GDP base year to 2022–23. How do the methodological and data improvements in the new national accounts series impact economic measurement and fiscal policy? (250 words, 15 marks)