India Updates GDP Base Year to 2022-23

January 3, 2025

The Government of India has recently decided to update the base year for calculating Gross Domestic Product (GDP) from 2011-12 to 2022-23. This change aims to provide a more accurate representation of the current economic landscape and enhance policy formulation. The revision reflects shifts in economic activity, consumption patterns, and industry developments over the past decade.

About Base Year

A base year serves as a reference point for economic indices. It is typically set at an arbitrary level of 100. Statistical agencies use it to track price changes over time. The value of a selected basket of commodities is established in the base year, allowing for inflation adjustments. This standardisation enables comparisons of economic growth across different time periods.

Importance of Updating the Base Year

Updating the base year is crucial for ensuring GDP data accurately reflects contemporary economic activities. It accounts for changes in consumption trends and contributions from various industries. An outdated base year can misrepresent the economic situation, leading to ineffective policy decisions.

Reasons for the Shift to 2022-23

The Indian economy has transformed in recent years. New sectors have emerged, digitalisation has accelerated, and the economy has adapted to post-pandemic realities. These factors necessitate a more current base year to reflect the evolving economic structure.

Implications of the Change

This change will lead to a revision of past GDP rates, offering a clearer picture of the economy. It will assist the government in crafting informed economic policies. The updated figures will align more closely with other indices, such as the Wholesale Price Index (WPI) and the Consumer Price Index (CPI).

Status of the Revision Exercise

The Ministry of Statistics and Programme Implementation has established a 26-member Advisory Committee on National Accounts Statistics. This committee, chaired by Biswanath Goldar, will determine the new base year for GDP calculations. It will also align GDP with other economic indices, ensuring consistency in data reporting.

GDP Calculation Methods in India

India calculates GDP using two primary methods – the factor cost method and the expenditure method. The factor cost method evaluates the performance of eight key industries, while the expenditure method assesses the economy based on household consumption, investments, and government spending. Both methods yield figures that are closely aligned but may differ slightly.

Data Collection Process

The Central Statistics Office (CSO) is responsible for gathering macroeconomic data in India. It conducts annual surveys and compiles various indices, such as the Industrial Production Index (IPI) and the Consumer Price Index (CPI). The CSO collaborates with federal and state agencies to collect necessary data for accurate GDP calculations.

The Factor Cost Figure

The factor cost figure is calculated by determining the net change in value for each of the eight sectors. These sectors include agriculture, mining, manufacturing, utilities, construction, trade, financial services, and public administration. The resulting data provides vital information about the overall economic performance and sector-specific contributions.

The Expenditure Figure

The expenditure method sums up domestic spending on final goods and services. It includes household consumption, net investments, government expenditures, and net trade. This approach marks which sectors contribute most to the economy, illustrating the resilience of domestic consumption.

GDP is the standard indicator of a nation’s economic health.
The factor cost method assesses eight key sectors.
The CSO collaborates with various government departments for data collection.
Domestic consumption constitutes over 60% of India’s GDP.
The Advisory Committee consists of 26 members, led by Biswanath Goldar.

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