Sambhav-2024

• Start the answer with a discussion that sets a context for the question.
• Discuss the concerns raised about the accuracy of GDP figures.
• Outline measures to enhance the precision of GDP calculations.
• Conclude suitably.

Introduction

Gross Domestic Product (GDP) is a crucial indicator of a country's economic performance, reflecting the total value of all goods and services produced within its borders. In India, GDP calculation follows the guidelines set by the Central Statistics Office (CSO) under the Ministry of Statistics and Programme Implementation.

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Calculation of GDP in India:

• Production Method: GDP is calculated by adding the gross value of all sectors of the economy, including agriculture, manufacturing, and services, minus the value of intermediate consumption.
• Income Method: GDP can also be calculated by summing up all incomes earned by residents in the country, including wages, profits, and taxes minus subsidies.
• Expenditure Method: GDP can be calculated by summing up all expenditures made in the economy, including consumption, investment, government spending, and net exports (exports minus imports).
  • India calculates its GDP using the following formula:

GDP = C + I + G + (X - M)

Where:

C is private consumption expenditure,

I is gross capital formation (investment),

G is government consumption expenditure, and

(X - M) is net exports (exports minus imports).

Concerns about the accuracy of GDP figures:

• Informal Sector:
  • One major concern is the substantial size of the informal sector in India, which is not adequately captured in GDP calculations.
  • This sector, which includes unregistered businesses and self-employed individuals, contributes significantly to the economy but is often underrepresented in official statistics.
    • More than 90% of the country's workforce is engaged in informal employment.
• Data Collection:
  • It is held that the data collection process is not robust enough to capture the diversity and complexity of India's economy.
  • It is not strictly in compliance with the UN System of National Accounts.
• Base Year Revisions:
  • The periodic revision of the base year for GDP calculation can also lead to discrepancies in figures, as it may not accurately reflect current economic realities.
  • Currently, India’s GDP base year is outdated (2011-12), which may not capture recent economic activities and investments.
• Not a Welfare Measure:
  • GDP doesn’t measure overall well-being or happiness.
  • Simon Kuznets, who developed the concept of GDP, warned it was not a suitable measure of a country’s economic development.
• Weak Relationship Between Growth and Employment:
  • State of Working India (SWI 2023) report indicates that the connection between GDP growth and employment in India is weak.
  • Growth in GDP doesn’t assure proportional job creation.

Measures to Enhance Precision in GDP Calculations:

• Improving Data Collection Methods:
  • Enhancing data collection techniques, especially in sectors like agriculture and informal economy, can improve the accuracy of GDP calculations.
• Regular Revisions and Updates:
  • Regularly revising and updating base years can help in reflecting changes in the economy more accurately, such as changing the base year to 2017-18, etc.
    • The MOSPI is considering changing the base year for GDP calculation from 2011-12 to 2017-18.
• Incorporating Informal Sector:
  • Efforts should be made to better incorporate the informal sector into GDP calculations through improved data collection methods and estimation techniques.
  • Utilize GST, NSSO, PLFS, NFHS and digital payment data for accuracy.
• Enhancing Data Quality:
  • Ensuring the quality and reliability of data sources used for GDP calculations is crucial to improving accuracy.
  • Creating integrated and centralized data repositories from various agencies to ensure consistency and accuracy.
• Utilizing Technology:
  • Leveraging technology, such as satellite imaging and big data analytics, can improve the precision of GDP calculations by providing more accurate and timely data.

Conclusion

Accurate GDP figures are essential for effective economic planning and policy formulation. While India calculates its GDP using the production method, concerns remain about the accuracy of these figures. Addressing these concerns through improved data collection methods and regular revisions can enhance the precision of GDP calculations in India.