Explainer: Why Is Government Revising Base Year For GDP Calculation?

The government in early December decided to change the base year for gross domestic product calculation from 2011-12 to 2022-23. This move is significant as it aims to present a more accurate reflection of the current economic structure and improve policy making.

What is base year and why it requires updation?

A base year is the first of the series of years in an economic and financial index. Typically, it is set to an arbitrary level of 100. The indices are employed in the computation of macroeconomic figures, such as inflation or rates of economic growth.

For a selected base year, the government's statistical agencies will select a basket of commodities and set its value to 100 in order to track prices. The current index value is calculated and compared to the base value each time inflation is assessed, using the prices of the selected commodities.

To summarise, the base year serves as a standard for determining GDP, by eliminating inflation and enables a comparison of economic growth over time. Updating base year is important as it guarantees that GDP data reflects the most recent economic activity, consumption trends, and industry contributions.

Why the shift from 2011-12 to 2022-23 as a base year?

The Indian economy has seen a revolution in the past decade, with the emergence of new sectors, an acceleration in digitalisation, and an adjustment to the post-pandemic realities.

Implication of base year change

The change will be factored in various aspects, which will also result in a revision of past GDP rates. This will give clearer picture about state of economy which will help government to design its economic policies.

What is the status of the exercise?

The Ministry of Statistics and Programme Implementation has set up a 26-member Advisory Committee on National Accounts Statistics to decide the base year for GDP data. Biswanath Goldar, former professor of the Institute of Economic Growth, has been appointed as its chairman.

This committee will also decide on aligning GDP with other indices, such as the wholesale price index or WPI for wholesale inflation, the consumer price index or CPI for consumer inflation, and the index of industrial production or IIP for calculating industrial growth. A separate working group and technical advisory groups have been also formed to revise base year for other indices.

Earlier, there was a plan to revise the base year from 2011-12 to 2017-18.