The computing methodology of India's Gross Domestic Product (GDP) changed significantly after the year 2015. Prior to 2015, India used the factor cost method for computing GDP, which primarily focused on production within the country's borders and valued goods and services at their basic prices.

However, after 2015, India adopted a new methodology called the market price method. This method takes into account not only the production within the country but also incorporates trade and production abroad. It values goods and services at their market prices, which includes taxes and subsidies.

The new methodology also introduced a more comprehensive approach to capturing economic activities by considering data from various sectors like manufacturing, services, and agriculture. It incorporated additional information through large-scale surveys, including the Annual Survey of Industries and the Economic Census, to capture a wider estimation of economic activity across different sectors.

Furthermore, after 2015, India also shifted its base year for calculating GDP from 2004-05 to 2011-12. This change aimed to reflect the evolving structure and composition of the economy, considering the significant changes in production methods and consumption patterns over time.

The change in methodology and base year allowed for a more accurate estimation of India's GDP and better alignment with international standards and practices. However, these changes also led to some revisions in historical GDP figures, reflecting the improved estimation techniques and data sources.

The Shift in India's GDP Calculation Methodology: Before vs After 2015

The calculation of India's Gross Domestic Product (GDP) underwent a significant change in 2015, with the implementation of a new base year and a shift in methodology. Here's a breakdown of the differences:

Before 2015:

• Base Year: 2004-05
• Methodology: "Production" method, which focused on measuring the value added by each sector of the economy.
• Data Sources: Largely relied on production data, with limited use of expenditure and income data.
• Limitations:
• The base year was outdated, making the GDP figures less representative of the current economy.
• The production method was prone to underestimation as it did not fully capture the service sector's contribution.
• The reliance on production data resulted in a lack of comprehensive and accurate data, leading to potential discrepancies.

After 2015:

• Base Year: 2011-12
• Methodology: "Expenditure" method, which measures the total spending on final goods and services by households, businesses, government, and foreigners.
• Data Sources: Combines production, expenditure, and income data for a more comprehensive approach.
• Improvements:
• The updated base year provides a more accurate reflection of the current economic structure.
• The expenditure method provides a broader view of economic activity, capturing spending patterns and the contribution of various sectors.
• The inclusion of expenditure and income data enhances data accuracy and completeness.

Key Changes and Impacts:

• Higher GDP Growth: The shift in methodology and the updated base year led to higher GDP growth estimates compared to the previous system.
• Increased Emphasis on Services: The expenditure method captures the services sector more effectively, highlighting its significant contribution to the Indian economy.
• Enhanced Data Quality: The broader data sources and improved methodologies have contributed to more accurate and reliable GDP data.

Criticisms and Debates:

• Data Discrepancies: Despite the improvements, there have been concerns regarding inconsistencies and potential overestimation in the new GDP figures.
• Transparency and Data Access: There have been concerns about the transparency and availability of the underlying data used for calculating GDP.

In Conclusion:

The change in India's GDP methodology in 2015 aimed to improve the accuracy and comprehensiveness of GDP figures. While it has brought about improvements, ongoing debates and concerns regarding data discrepancies and transparency highlight the need for continuous evaluation and refinement of the methodology.

Before 2015, India's Gross Domestic Product (GDP) was computed using the old series with a base year of 2004-05. However, in 2015, the methodology of computing GDP was revised, and a new series with a base year of 2011-12 was introduced. Here are the key differences between the two methodologies:

Old Series (2004-05 base year, pre-2015)

1. Estimation methodology: The old series used the 'Establishment Approach' to estimate GDP, which focused on data from organized sectors like factories, companies, and government organizations.
2. Data sources: The primary data sources were:

• Annual Survey of Industries (ASI) for the manufacturing sector.
• National Accounts Statistics (NAS) for other sectors like agriculture, construction, and services.
• Other administrative data sources, such as company returns and government accounts.

3. GDP calculation: GDP was calculated using the 'Value Added' method, which estimates the value added by each sector and then aggregates them to estimate the total GDP.

New Series (2011-12 base year, post-2015)

1. Estimation methodology: The new series uses the 'Production Approach' to estimate GDP, which considers data from both organized and unorganized sectors, including small-scale industries, self-employed individuals, and informal sectors.
2. Data sources: The primary data sources are:

• MCA21 (Ministry of Corporate Affairs) database for the corporate sector.
• National Sample Survey Office (NSSO) data for the unorganized sector, including small-scale industries and informal sectors.
• Other administrative data sources, such as company returns, government accounts, and tax data.

3. GDP calculation: GDP is calculated using the 'Gross Value Added' (GVA) method, which estimates the gross value added by each sector and then aggregates them to estimate the total GDP.
4. New features: The new series includes several improvements, such as:

• Incorporation of new data sources, including MCA21 and NSSO data.
• Coverage of the entire economy, including the informal sector.
• Adoption of the latest international standards, such as the System of National Accounts (SNA) 2008.
• Improved estimates of service sector GDP, including financial services, real estate, and business services.

Impact of the methodological change

The new series has resulted in a higher GDP growth rate compared to the old series, primarily due to the inclusion of new data sources and improved estimates of the service sector. The GDP growth rate for 2013-14, for example, was revised upward from 4.7% (old series) to 6.9% (new series).

The changes in methodology have also led to a reclassification of certain industries, such as the movement of 'Trade, Hotels, and Restaurants' from the service sector to the secondary sector.

Overall, the new series is considered more comprehensive and accurate, providing a better reflection of India's economy.