TOI explains: Ringing in new series with new data points

The ministry of statistics and programme implementation released a new series of national accounts with 2022–23 as the base year, replacing the 2011–12 series. The revision incorporates fresh data sources such as GST, PFMS and e-Vahan, introduces double deflation in key sectors, and relies on annual surveys for improved household estimates.

■ What is a base year? Why does it need to be revised periodically?
A base year serves as a fixed point in time against which changes in prices, quantities or other economic indicators are measured. It allows analysts to adjust nominal values to real values, removing the effect of inflation and enables comparison of growth over the years. It is revised periodically to ensure it accurately reflects the current structure of the economy and accounts for changes in the relative prices and output composition, as the parameters that constitute the calculation of these indicators become obsolete with time, rendering the interyear comparisons pointless.

■ Which macro-economic indicators are getting a new base year?The statistics ministry has already updated the base year for consumer price index (CPI), which is used to derive retail inflation, to 2024 from 2012. The gross domestic product (GDP), which is a measure of a country’s broad economic size, is seeing its base year revised to FY2022-23 from FY2011-12. The index of industrial production (IIP), which measures industrial activity in the country, will see its base year revised to FY2022-23 on May 28.

■ What are some key changes in the new GDP series?There is a shift from ‘proxybased’ estimation to ‘directdata’ integration, with the use of numerous alternative data sources. The previous series calculated Private Final Consumption Expenditure (PFCE), which is a measure of demand in the economy, as a ratio of how much of a product went to households versus businesses. The new series will compute demand directly using the consumption expenditure survey. To track the vast informal sector, the old series used the labour input method. The new series will use data from the Annual Survey of Unincorporated Sector Enterprises (ASUSE) and Periodic Labour Force Survey (PLFS) to gauge their output and productivity.
Recognising structural shifts in the economy, the new series will better capture sectors, such as digital economy (e-commerce, fintech, gig work) and renewable energy, which were negligible in the old series.

■ What are some new and alternate data sources being used in the new GDP series?High frequency administrative data like: ä GSTN data is used for state-level GVA allocation, cross-verifying corporate activity, and as a high-frequency indicator for trade, services.

➤ MCA-21 (Version 3), which is the most advanced version for all corporate and Limited Liability Partnership filings will be used to measure the private corporate sector.
➤ e-Vahan data used for real-time vehicle registration to estimate road transport services and consumption. FASTag Data used as a proxy for commercial road traffic and logistics activity.
➤ Public Financial Management System for direct tracking of govt expenditure at central and state levels.
➤ ESIC/EPFO payroll data to track formal employment and wages. Data from household & enterprise surveys: ä Household Consumption Expenditure Survey 20222023.
➤ All-India Debt and Investment Survey 2019 for calculating interest rates and capital formation for the unincorporated sector.
➤ Periodic Labour Force Survey for annual, quarterly labour market data to refine income-approach estimates.
➤ Annual Survey of Unincorporated Sector Enterprises to directly measure the Gross Value Added (GVA) of small businesses and MSMEs.

■ What is a deflator and how has it changed?
Unlike CPI, which only tracks the price of goods and services households consume, the GDP deflator tracks the price of everything made in the country such as machines, construction and govt services. It is used to shrink the nominal GDP to find the real GDP. The new series will use a double deflator. So, the output and input values will be separately adjusted to calculate real value-added, helping prevent distortions caused by volatile raw material prices, such as oil or metals. The GDP deflator basket will now have 600 items, up from 180 in the old series.