In 2015, the Central Statistics Office (CSO) under the Statistics Ministry had changed the base year for the Gross Domestic Product (GDP) from 2004-05 to 2011-12, and now again the base year is about to get revised. In June last year, the Statistics and Programme Implementation Minister of India D.V Sadananda Gowda had said in a press conference that the Ministry is set to change the base year of national accounts to 2017-18 from 2011-12. It’s noted that the recent announcement made by him is aligning with the statement given by him in the last year.
The change in the base year:
On Wednesday, Mr. Gowda gave a statement about the revision of the base year. He said that the Government is going to change the base year for the calculation of Gross Domestic Product, Index of Industrial Production (IIP) and Consumer Price Index (CPI) to 2017-18 from the current base year of 2011-12. In addition to that the base year of retail inflation will also be revised to 2018.
In a press conference on budget provision the Union Minister added that the changes are being made in order to accommodate and factor the changes that take place in the economic scenario of the country. He added that, “The ministry will undertake various steps in the next fiscal beginning April that will improve the statistical system that will help meet the data requirements in the emerging socio-economic scenario.”
The Statistic Ministry has proposed the new base year for GDP and IIP as 2017-18 while for CPI it will be 2018. It’s noted that in the budgetary allocation of 2018-19, the Ministry of Statistics and Programme Implementation (MOSPI) has been awarded with Rs. 4,859 crore.
The need to change the base year and its impact:
After a certain period, the base year becomes less effective due to emergence of new sectors that are potential to impact a country’s economy, that’s when there arises the need of changing the base year. Along with that the inflation also increases with time and the base year becomes more irrelevant that creates an urge for the Government to rebase it. A base year is a very sensitive measure to calculate the macroeconomic factors, like if the current inflation rate is higher than there would be lower rate of inflation in future, while the current slowdown of the GDP statistics means higher rate of GDP in the future.
A change in the base year, also affects a wide range of economic indicators like public expenditure, taxes, public sector debts, as they are calculated in terms of their ratio with GDP. In addition to that, the change in the base year also makes a country get complied with the international standards, like for India, it reduces the gap between the way India calculates GDP and the methodology used by the International Monetary Fund (IMF).
It’s noted that Revision of the base year is a regular exercise performed by a country, in which it changes the base year of macroeconomic indicators to capture the structural changes in the economy and improve the quality and repetitiveness of the indices.
P.S- The article was originally published in The Qrius (Formally the Indian Economist)
By Devanshee Dave