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GDP (over) estimates

  Mar 12, 2020

GDP (over) estimates

What did Arvind Subramanian say?

A new study by former Chief Economic Adviser Arvind Subramanian says the economic expansion was overestimated between 2011 and 2017. Rather than growing at about 7% a year in that period, growth was about 4.5%, according to the research paper, published by the Center for International Development at Harvard University.

The overestimation occurred after the government changed the methodology in calculating gross domestic product in 2012. One of the key adjustments was a shift to data compiled by the Ministry of Corporate Affairs (MCA 21).

What is the basis for the observation?

The former CEA's analysis has been based upon 17 key economic indicators for the period 2001-02 to 2017-18 with a higher interdependence with the GDP growth. For example, Growth in real credit to industry collapsed mirrored in the official figures for real investment growth, which declined; Real exports fell; Overall real credit slowed; and real imports slowed. To mention some indicators that did not go well with the claims of 7% growth rate.  

How is the MCA 21 connected?

It is known that for the corporate sector, the old series used the RBI study on company finances from a sample of around 2,500 companies. There has been a long-standing demand to change this data. In 2011-12 series, corporate sector, both in manufacturing and services, has been comprehensively covered by MCA 21 data. For the “manufacturing” enterprises, MCA 21 data base has been used to supplement the information available in the Annual Survey of Industries. In the new series, the CSO used the MCA 21 data set which had about five lakh non-financial private companies. This led to a big change in manufacturing sector value added.  

What is SNA 2008?

The System of National Accounts 2008 (2008 SNA) is the latest version of the international statistical standard for the national accounts, adopted by the United Nations Statistical Commission (UNSC).

The aim of SNA is to provide complete system of accounts enabling international comparisons of all significant economic activity. The suggestion is that individual countries use SNA as a guide in constructing their own national accounting systems, to promote international comparability. However, adherence to an international standard is entirely voluntary, and cannot be rigidly enforced.