Gross Value Addded (GVA) in India

 Context: Three years after the shift to the new base year of 2011-12, the CSO and NITI Aayog jointly released the back series GDP data detailing growth numbers for 2004-05 to 2011-12.

Introduction of GVA at basic prices in India

1. In India, GDP is estimated by Central Statistical Office (CSO).

2. Under the Fiscal Responsibility and Budget Management Act 2003 and Rules thereunder, Ministry of Finance uses the GDP numbers (at current prices) to peg the fiscal targets.
For this purpose, Ministry of Finance makes their own projections about GDP for the coming two years while specifying future fiscal targets.
In the revision of National Accounts statistics done by Central Statistical Organization (CSO) in January 2015, it was decided that sector-wise wise estimates of Gross Value

3. Added (GVA) will now be given at basic prices instead of factor cost.

4. In simple terms, for any commodity the basic price is the amount receivable by the producer from the purchaser for a unit of a product minus any tax on the product plus any subsidy on the product.

5. However, GVA at basic prices will include production taxes and exclude production subsidies available on the commodity.

6. On the other hand, GVA at factor cost includes no taxes and excludes no subsidies and GDP at market prices include both production and product taxes and excludes both production and product subsidies.

7. GVA at factor cost + (Production taxes less Production subsidies) = GVA at basic prices

GDP at market prices = GVA at basic prices + Product taxes- Product subsidies

Why back series data and its important?

1. The back series provides historical data for GDP from 2004-05 to 2010-11 using 2011-12 as the base year.
2. The purpose for such a back series is to ensure the old GDP data and the new are comparable.

Base year and its significance

1.The base year of the national accounts is the year chosen to enable inter-year comparisons.
2. It is changed periodically to factor in structural changes in the economy and present a more realistic picture of macroeconomic aggregates.
3. The new series changes the base to 2011-12 from 2004-05.
4. The base year is important in GDP calculation as factors such as purchasing power and enables calculation of inflation-adjusted growth estimates.
5. To depict a better picture of the economy through macroeconomic aggregates like Gross Domestic Product (GDP), National Income, consumption expenditure and other related aggregates and indicators.

What is the issue?

The GDP back series data released jointly by CSO and NITI Aayog contradicts the earlier findings of a committee set up by National Statistical Commission to develop a methodology for deriving back data by linking the old series with the new base year of 2011-12.

What is the controversy?

1. No explanation for using new datasets- There is not enough explanation for the choice of datasets and proxies, especially those datasets that didn’t exist before 2011-12.

2.MCA data not available before– For instance, for years preceding 2006, when the MCA-21 database did not exist, the CSO has used ASI data for estimating manufacturing growth whereas economists say there could have been other indicators for the same metric.

3. Criticism over the role of NITI Aayog- The role of the NITI Aayog in the release of the statistical exercise of CSO, which comes under Ministry of Statistics and Programme Implementation (MoSPI), has also been questioned.

4. Volume index approach v/s financial data approach (GVA based approach)- The System of National Accounts prefers to go with volume indices. The big difference between the volume index approach and the financial data approach is that the financial data captures changes in quality(as it is balance sheet based) which the volume approach does not.

5. Timing of data release- With ongoing assembly elections and general elections due in 6 months timing of such exercise is not taken well.

Way forward

1. Sustainable Investment- The GDP data controversy runs the risk of denting the market’s trust and conviction in official data released by government agencies. This can affect incoming investment in the country.

2. Institutional autonomy- Organisations such as CSO, must not be politicized for institutional damage have prolong adverse ramifications.

3. Political overtones- During phase of elections in specific and otherwise in general, politicians must be mindful of such exercises and its consequences. As it is well known that “If you torturethe data long enough, it will confess to anything”.

4. Subjectivity should be reduced – Since there is a debate among experts over data/indicators used, there must be thus framed set of measures through effective deliberations to reduce the subjectivity involved.

5. External Scrutiny:The CSO should be open to submit the methodology used and giving data to a review of independent experts to prove the credibility of the exercise.
GDP is only one of the methods to measure economic growth– Being a demographic dividend nation, the country needs to look at other data like creation of jobs in the economy, how growth translated into inclusive growth, human development, care economy and happiness levels among others.

By: Priyank Kishore