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Introduction            

The Ministry of Statistics and Programme Implementation (MoSPI) is responsible for GDP estimation. GDP is measure through the Output Method (all value added by each producer), the Income Method (all income generated) and the Expenditure Method (all spending). Recently, the Ministry of Finance has addressed concerns regarding the credibility of India’s GDP figures after a reported 7.8% growth in the first quarter of the fiscal year 2023-24. 

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Various concerns associated with GDP estimation in India

• Expenditure Component Disparity: While GDP figures show growth, the decline in major expenditure components such as private consumption and government spending suggests a discrepancy. Eg: During economic slowdowns, reported GDP growth has sometimes seemed at odds with consumer and government spending trends.
• Conflicting Calculation Methods: India employs both factor cost and market price methods for GDP calculation. The former looks at industry performance while the latter assesses expenditures like trade and consumption. This dual approach can result in variations, causing confusion over actual economic performance. 
• Misleading Economic Portrayal: There’s concern that upbeat GDP figures may overshadow real economic challenges faced by citizens, such as during the demonetization drive when GDP numbers did not correlate with the observable financial distress of small businesses and informal labourers.
• Census Delays: The postponement of the census hampers the integration of new demographic data into economic metrics, which is critical for accurate GDP estimation. Without up-to-date population information, economic indicators may be significantly off-target.
• Underrepresented Sectors: The informal sector which accounts for 92.4% of jobs in India’s economy, remains inadequately represented in GDP figures. This exclusion can lead to an underestimation of economic activity and workforce engagement.
• Political Influence Allegations: There have been concerns and allegations about political interference with statistical processes, which might lead to biased GDP estimations serving the narrative of economic progress.
• Overlooking Economic Complexity: India’s GDP metrics may not fully encapsulate the complexities of the economic landscape, especially with burgeoning sectors like digital services, e-commerce, and the gig economy.

Initiatives undertaken by the government to rectify these concerns 

• Base Year Revision: India periodically revises the base year for GDP calculation to ensure the data reflects the latest economic structure. The recent shift to 2011-12 from 2004-05 as the base year is a step toward capturing contemporary changes in the economy, thereby improving the relevance and accuracy of the data.
• Adoption of International Standards: The government has aligned its GDP estimation process with the System of National Accounts (SNA) 2008, which is recommended by the United Nations. It allows for international comparability and ensures the GDP estimation process incorporates global best practices.
• New Surveys and Indicators: Efforts to refine employment statistics have led to the incorporation of administrative statistics from the MCA-21 database. Also introduction of new surveys, like the Periodic Labour Force Survey (PLFS), provides a more comprehensive view of employment dynamics.
• Quality Assurance Framework: The establishment of the National Statistical Quality Assurance Framework (NSQAF) aims to enhance the reliability and quality of the statistical data produced by various agencies, setting the standard for statistical processes and outputs.
• Data Revision and Finalization: Addressing concerns about lack of timeliness, the Ministry of Finance has clarified that GDP data is refined over time, with a final version released three years post-preliminary estimates, allowing for a more accurate and comprehensive representation of the economy.
• Broad-Based Economic Analysis: The government advocates for a multi-dimensional approach to analysing economic performance, suggesting that indicators such as Purchasing Managers’ Indices, Bank Credit Growth, and consumption patterns should be considered in conjunction with GDP figures. 
• Industrial Production Review: The government has acknowledged discrepancies in the Index of Industrial Production (IIP) and is working towards reconciling these, particularly where underreporting in manufacturing growth has been identified.
• GDP Deflator Explanation: The Ministry of Finance has addressed the confusion around the difference between nominal and real GDP growth rates by explaining the influence of the Wholesale Price Index (WPI) on the GDP deflator. The expectation is that as price levels stabilise, the deflator will offer a clearer picture of economic growth.
• Income Approach Consistency: The steadfast use of the Income Approach in GDP calculation underlines the government’s commitment to consistency, ensuring that methodological changes do not distort the understanding of economic trends.

Strategic Approach for ensuring the reliability and transparency of GDP measurement in the future

• Real-Time Data Tracking: Develop a digital dashboard for real-time economic data tracking from various industries and sectors. This can be achieved through a partnership with technology companies that specialise in big data analytics, improving the immediacy and accuracy of GDP inputs.
• Comprehensive Satellite Accounting: Implement satellite accounting systems that can better measure the contributions of non-traditional sectors like the gig economy, digital services, and environmental resource depletion to provide a more comprehensive GDP estimate.
• Public Data Repository: Establish an open-access data repository where all raw data and metadata used for GDP calculation are available for public scrutiny, fostering transparency and allowing independent verification.
• Enhanced Survey Methods: Use mobile and internet-based surveys to collect data more frequently and accurately. This can reduce the time lag in data collection and enable more up-to-date GDP estimations.
• Cross-Verification with Alternative Indicators: Integrate alternative economic indicators such as electricity consumption, transport activity, and satellite imagery to cross-verify and complement traditional GDP measurement methods.
• Advanced Statistical Models: Adopt advanced econometric and statistical models that can handle the complexity of India’s economy. Machine learning models could identify patterns and correlations that may be missed by traditional methods.
• Regular Independent Audits: Conduct regular independent audits of the GDP estimation process by third-party international experts to ensure adherence to global standards and to build credibility.
• Policy Feedback Mechanism: Establish a feedback mechanism where policymakers can provide insights into the on-the-ground economic situation, which can then be used to refine and validate GDP measurements. 

Conclusion

By implementing these strategic approaches, India can significantly improve the reliability and transparency of its GDP measurement, ensuring that it accurately reflects the country’s economic performance and dynamics. This will not only bolster the confidence of international investors but also provide a solid foundation for economic planning and policy formulation.

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