An Early Evaluation of Indias GDP

Rebasing
0

CEIC India Data Talk - February 17, 2015

Indias Central Statistics Office (CSO) has recently rebased its Gross Domestic Product (GDP) using the fiscal year that
ended March 2012 as its new base year. The newly released National Accounts Statistics 2011-2012 (NAS 2011-2012)

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include revisions in the methodology and classification systems and seek to incorporate new sources of data. In
addition, the CSO has transitioned towards the use of market price measures instead of its previously used factor price
series. These changes bring India more in line with the commonly adopted System of National Accounts (SNA), aligning

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Indias GDP statistics with other countries adopting the same standards and making them more internationally
comparable.

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The new series incorporate additional data sources from the Ministry of Corporate Affairs (MCA), which account for
various surveys including the National Sample Survey to provide better estimates of output. This is especially important
given the relative size of Indias informal (i.e. unregistered) economy. These additional data sources and methodological
changes to the statistics have resulted in significant differences compared to the previous system, affecting various
growth rates and GDP-dependent ratios. Under the new NAS 2011-2012, India has a higher GDP growth rate of 6.90%
at market prices for the fiscal year that ended March 2014, compared to 5.02% under the previous system (NAS 20042005). The significant increase in growth is attributable to the inclusion of services-based elements in manufacturing
(classified as manufacturing), thus providing a truer reflection of Indias economic structure. Indeed, under NAS 20112012, the services sector constitutes a smaller proportion of overall GDP at 50.91% as of the fiscal year that ended
March 2014 compared to 57.03% under the previous system. Indias industrial sector, conversely, now takes a larger
proportion of GDP reflected across each of the components (manufacturing, mining and construction). Most notably, the
manufacturing sector now comprises 17.06% of total GDP compared to 12.89% under the previous system.
The revision in favour of manufacturing has been justified by the nature of Indias economic structure. Higher
manufacturing figures have also been attributed to additional data sources (most notably the MCA21 database) used to
supplement those from the existing manufacturing companies. On the other hand, Indias transport, storage and
communication services, are smaller after the rebasing, totalling INR7.08 trillion for the fiscal year that ended March
2014, compared to INR7.81 trillion under the previous system, NAS 2004-2005, with a similar decline observed in the
statistics for the prior year.
However, the new NAS 2011-2012 is not without its critics, notably because of a downward revision of nominal GDP
post-rebasing which affects various economic risk ratios. During the fiscal year that ended March 2014, India reported
nominal GDP of INR113.45 trillion at market prices compared to INR113.55 trillion under the previous system of national
accounts (NAS 2004-2005), despite (and indeed, because of) the availability of new data sources from previously
unreported firms. The effect is amplified for prior fiscal years, such as 2012 and 2013 where the differences are larger by
as much as 1.97% and 1.23% respectively. Reduced GDP reported during the previous fiscal years may have an
upward bias on overall growth. Additionally, it will affect GDP-relative ratios such as those for the current account and
government debt, which some critics have suggested were distorted (i.e. larger than reality) due to the previous, poorly-

defined computation of GDP. However, even after the changes, the current account-to-GDP and debt-to-GDP ratios
should remain broadly unchanged. Indeed these ratios are might just be marginally worse in FY 2011-12, for instance,
given that lower nominal GDP barring corresponding revisions to the current account and debt statistics.
At the time of writing, only the annual national accounts are available. When the quarterly series are released midFebruary 2015, they will help analysts better decompose the effect of Indias rebasing. The structural changes implied by
the rebased GDP (from a services-centric to a more manufacturing-centric economy) merit further analysis. The
availability of quarterly statistics may also help shed light on how Indias national accounts statistics correspond to other
trends in its services and manufacturing sectors, in addition to its trade and expenditure patterns.
By Ian Lim - CEIC Analyst
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