Estimating GDP: Phenomena and Challenges

Gross Domestic Product (GDP) and its Importance
• GDP is a significant measure of a country’s economic size and is used to compare indicators across countries and regions.
• It is usually more meaningful at “constant” prices or in “real” terms, netting out the effect of price changes.
• The real GDP is estimated for the “base year”, requiring a variety of datasets on output, prices, and employment.
• The National Statistical Office (NSO) revises the GDP series every 5-10 years to account for changes in relative prices and output composition.

GDP Series Revision and GST Data
• The NSO is considering using the goods and services tax (GST) data to estimate value addition, replacing the Ministry of Corporate Affairs’ (MCA-21) database for the Private Corporate Sector (PCS).
• The MCA-21 database was brought in only in the last revision, with 2011-12 as the base year.
• The new estimates were defended by the NSO, claiming they capture value addition more completely, using a much more extensive database, improved estimation methods, and following the latest template of international best practices.

Systematic Overestimation
• Comparisons of Gross Value Added (GVA) in the manufacturing sector as per GDP series and by the ASI based on production accounts of registered factories showed a systematic overestimation in NAS estimates compared to the ASI-based estimates.
• The evidence presented is a cautionary tale for the proposed use of GST data for GDP estimation.
• NSO must initiate pilot studies to verify the GST dataset’s suitability for value addition estimation of specific industries, sectors, and States.
• GST data can be a game-changer for GDP estimation in the proposed revision, but its details are in a black box, as it has not been open for policy research.