Feb 12, 2016: Understanding and assessing reliability of New GDP numbers

Feb 12, 2016: Understanding and assessing reliability of New GDP numbers

General Studies: Daily Capsule

Curtain Raiser –News Update (Feb 12, 2016)

Assessing Reliability of New GDP numbers:

New base year introduced for GDP estimate	·         New series of National Accounts Statistics (NAS)  taking 2011-12 as base year released (replacing the earlier series with  2004-05 base year) ·         Also incorporated United Nations System of National Accounts (SNA 2008)
GDP growth forecast based on above change	7.6%
Why doubt over this forecast?	This growth rate is out of line with other economic parameters like: ·         Credit flows ·         Output expansion in major industries ·         Capacity utilization in industries like cement and steel
Understanding how GDP is estimated	By estimating Private corporate sector’s (PCS) share and Household sector’s share
Why growth less reliable?	New Methodology adopted in assigning the share of these two components (PCS) and household sector are different as compared to earlier method
Explanation in details: Institutional composition of GDP	·         Private corporate sector’s (PCS) share ·         Household (unorganized or informal) sector’s share
Institutional composition of GDP with per cent share	·         Private corporate sector’s (PCS) share in the GDP expanded to: 34 per cent in new series (23 percent in the older series) ·         Household (unorganized or informal) sector’s share in the GDP shrunk to:  45 per cent in the new series (from 56 per cent earlier)
Methodological changes for GDP estimates (PCS)	Private corporate sector (PCS): The revised National Accounts Statistics (NAS) has used the Ministry of Corporate Affairs MCA21 database of  about 5.2 lakh companies to estimate PCS’s contribution to domestic output (earlier was based on RBI’s purposive sample of about 4,500 paid-up capital companies)
Methodological changes for GDP estimates (Household sector)	Household sector: Conventional method of estimation: household sector’s output was estimated as a product of output per worker and the number of workers employed New method introduced a procedure under the assumption that the older method over-estimated the contribution of self-employed workers.

Source: Why 7.6% growth is hard to square, by R.Nagaraj, Feb 12, The Hindu