India’s GDP Estimates: Showed that India’s Economy Grew by 7.8% in Q1

Context:

• GDP estimates based on an outdated base would not adequately capture new activities being undertaken in the economy.

What is India’s GDP Estimates for the Q1 of 2023?

• On August 31st, 2023 the National Statistical Office (NSO) released the economic growth data for the first quarter (April, May, June) of the current financial year which showed that India’s GDP grew by 7.8% in Q1.

What is India’s GDP?

• India’s GDP is the total valuation of final goods and services produced within the geographical borders of a country during a specified period (usually a year).
• The GDP is a statistical indicator that defines the economic progress and development of a country.
• Percentage growth in the GDP during a quarter is considered as the standard of economic growth.
• In 2015, the Central Statistics Office (CSO) moved away with GDP at factor cost and adopted the international practice of GDP at market price and the Gross Value Addition (GVA) measure to better estimate economic activity.
  • GDP at market price = GDP at factor cost + Indirect Taxes – Subsidies

What is the base year?

• The base year is a benchmark with reference to which the national account figures such as gross domestic product (GDP), gross domestic saving, and gross capital formation are calculated. 
• In India, the first estimates of national income were published by the Central Statistical Organisation (CSO) in 1956 taking 1948-49 as the base year.

Why has there been demand to revise the base year for calculation of GDP?

• The base year has to be revised periodically in order to reflect the structural changes taking place within an economy, such as increasing the share of services in GDP.
  • The more frequently the base year can be updated, the more accurate the statistics will be.
• The India’s GDP is presently computed with the base year of 2011-12 which is now more than 10 years old.
  • Under normal circumstances, the base should have been revised after five years in 2016-17, with the readiness for another revision for 2021-22.

Types of India’s GDP Measurements

• Real GDP: India’s real GDP is the gross domestic product and is measured with respect to a base year. It is adjusted to inflation and hence is also known as inflation-corrected GDP or current price.
  • For example, since 2015, the current base year for the determination of India’s GDP (real) is 2011-12. Earlier, it was 2004-05.
• Nominal GDP: It is measured based on prevailing current market prices, without taking into account the effects of inflation or deflation.
  • It depicts the monetary value of goods and services produced in a country in one financial year.

What are the limitations of India’s GDP?

• Exclusions of non-market transactions: Non-market transactions like voluntary, domestic, or other work that have a positive impact on the productivity of workers are excluded from GDP.
• Does not account for the standard of living: The standard of living of a country cannot be determined by considering its GDP. India is one of the best examples of a country with a high GDP but a relatively low standard of living.

Does not account for externalities: India’s GDP does not consider the impact of industries on the environment and social welfare. Environmental experts have argued for the inclusion of such damage to the GDP.

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