Revision in Calculation of GDP
Context:
The Ministry of Statistics and Programme Implementation (MoSPI) plans to do away with the contentious discrepancies component in the upcoming revision of the GDP data series.
The new series with Base Year 2022-23 is scheduled for release on February 27, 2026, with the back series to follow by February 2027.
Gross Domestic Product (GDP):
GDP is a fundamental concept in macroeconomics, representing the total monetary value of all final goods and services produced within a country’s borders over a specified period, typically a year.
Components of GDP:
Goods and Services (including Intangible goods)
Final Goods and Services
Within Geographic Boundaries
Specific Time Period
Calculation Methods of GDP:
The statistics ministry calculates GDP using two primary methods:
Production or Income Approach:
Total value added at each stage of production in an economy.
It focuses on the output of goods and services produced by various industries.
Expenditure Approach:
This method sums up Government Final Consumption Expenditure, Private Final Consumption Expenditure, Gross Fixed Capital Formation, change in stock, valuables, and net exports
Ideally, the GDP figures from both methods should match.
However, due to differing data sources, variations in coverage, valuation, and time lags, they often differ
The difference is recorded as discrepancies under the expenditure approach (as the production-side GDP is generally considered more accurate)
Issues with Discrepancies:
Due to different sources of data used for the two approaches and variations in coverage, valuation, and lags in recording of data, the final GDP numbers arrived at through the two approaches may not match.
As such, the difference is shown as 'discrepancies' under the expenditure approach.
Large discrepancies can lead to significant revisions in future GDP growth rates.
For example, in the July-September quarter, discrepancies stood at 3.3% of GDP
There have been sizable swings in these figures, especially post-pandemic
Proposed Solution:
To eliminate these discrepancies, MoSPI plans to integrate Supply and Use Tables into the compilation of annual accounts
SUTs track how goods and services are supplied by domestic industries and imports and how they are distributed for intermediate or final use (including exports).
This framework ensures that the total supply and use of each good and service balance out, removing the need for a discrepancies head.