Revising GDP Base Year

19-06-2025

Why in the News?

The Secretary in the Ministry of Statistics and Programme Implementation, said that the government will revise the base year for calculating GDP.
1. Gross Domestic Product (GDP) is the total monetary value of all final goods and services produced within a country’s borders in a specific time period (usually a quarter or a year).
The current base year is 2011-12, and the new base year will be 2022-23.
This change will be done in February 2026.
The base years for other economic indicators like the Index of Industrial Production (IIP) and the Consumer Price Index (CPI) will also be changed to 2022-23 and 2023-24 respectively.
These updates are important to reflect the real state of the Indian economy.

What is the Index of Industrial Production (IIP)?

The Index of Industrial Production (IIP) is a monthly economic indicator that measures the real output of the industrial sector of the economy over time.
It reflects short-term changes in the volume of production of industries such as manufacturing, mining, and electricity.

Key Features of IIP:

Aspect	Details
Released by	National Statistical Office (NSO), Ministry of Statistics and Programme Implementation (MoSPI)
Frequency	Monthly
Base Year (current)	2011–12
Covers	Mining (14.2%), Manufacturing (77.6%), Electricity (8.0%)
Type of Index	Volume index (measures quantity, not value)
Purpose	Tracks industrial sector performance and provides input for GDP estimation

What is the Consumer Price Index (CPI)?

The Consumer Price Index (CPI) is a monthly measure that tracks the average change in prices paid by consumers for a basket of goods and services over time.
It is the most widely used measure of inflation in India.

Key Features of CPI:

Aspect	Details
Released by	National Statistical Office (NSO), Ministry of Statistics & Programme Implementation (MoSPI)
Frequency	Monthly
Base Year (Current)	2012
Measures	Retail inflation (i.e. inflation as experienced by consumers)
Type of Index	Price Index

Types of CPI in India:

CPI Type	Target Group	Used For
CPI (Urban)	Urban population	Inflation trends in cities
CPI (Rural)	Rural population	Inflation in villages and small towns
CPI (Combined)	Both rural + urban	Headline inflation, used by RBI & govt
CPI-AL	Agricultural Labourers	Wage indexation for rural labour policies
CPI-RL	Rural Labourers	Wage indexation for rural labourers

What are the Key Highlights?

Historical Background
1. The first national income estimates were prepared by the National Income Committee (1949), chaired by P.C. Mahalanobis.
  1. Reports were released in 1951 and 1954.
2. Base year revision is not just a numerical update, it involves a comprehensive overhaul of how GDP is calculated, It reflects Improved economic structures, updated data sources, Global best practices.
3. The planned base year update in 2017-18 did not happen due to problems in key surveys and data quality.
4. The base year of GDP in India is revised by the National Statistical Office (NSO).
  1. Earlier It was known as the Central Statistics Office (CSO), which was merged with the National Sample Survey Office (NSSO) in 2019 to form the NSO under the Ministry of Statistics and Programme Implementation (MoSPI).
Timeline of GDP Base Year Revisions:

Revision Number	From Base Year	To Base Year	Date of Revision
1st	1948–49	1960–61	August 1967
2nd	1960–61	1970–71	January 1978
3rd	1970–71	1980–81	February 1988
4th	1980–81	1993–94	February 1999
5th	1993–94	1999–2000	January 2006
6th	1999–2000	2004–05	January 2010
7th	2004–05	2011–12	January 30, 2015

What are the Significances of the GDP Base Year Revision?

Improved Accuracy and Relevance:
1. Reflects the current economic structure, such as rising dominance of the services and digital sectors.
2. Uses updated prices, consumption patterns, and production data for more realistic GDP estimation.
3. Enhances accuracy of sector-wise estimates (agriculture, industry, services).
Restoration of Data Credibility:
1. Addresses controversies from the 2015 revision, including allegations of GDP overestimation.
2. Helps rebuild trust in India’s macroeconomic data, especially among economists and independent experts.
3. Reduces reliance on outdated or inconsistent data sources (e.g., outdated Census).
Strengthening Policy Formulation:
1. Accurate GDP data is vital for evidence-based policymaking in areas like employment, poverty alleviation, taxation, and investment.
2. Enables better design of welfare schemes by understanding sectoral and regional contributions more clearly.
Meeting Global Data Standards:
1. Aligns India’s GDP estimation methodology with international best practices (UN System of National Accounts - SNA).
2. Enhances India’s credibility with global agencies like IMF, World Bank, and credit rating agencies.
Investor Confidence and Capital Flows:
1. With India emerging as the third-largest economy (in nominal terms), transparent and robust GDP figures are essential for Foreign Direct Investment (FDI), Portfolio investment, and Sovereign ratings.
2. GDP data affects risk perceptions, bond yields, and capital inflows.
Correction of Sectoral Distortions
1. Brings improvements in estimates from manufacturing, informal sector, and new-age digital services.
2. Integrates GST and digital transactions more efficiently and accurately.

What is the meaning of “third-largest economy (in nominal terms)”?

It refers to a country's Gross Domestic Product (GDP) measured at current market prices (without adjusting for inflation or cost of living), and converted into a common currency, usually US dollars.

Breakdown of the term:

Term	Meaning
Third-largest	India is expected to rank 3rd in the world in terms of total GDP value
Economy	The total size of a country’s output (goods & services) in a year
Nominal terms	Measured at current prices without adjusting for inflation or purchasing power

What are the Challenges and Way Forward?

Challenges	Way Forward
1. Credibility Crisis due to 2015 revision controversy	Ensure transparent and peer-reviewed methodologies; publish full details of data sources
2. Delayed Revision (missed 2017–18 cycle)	Adopt a fixed 5-year revision cycle as recommended by the National Statistical Commission
3. Data Quality Issues in sources like MCA-21 vs. ASI	Use triangulation from multiple sources (MCA-21, GSTN, ASI, NSS) to validate estimates
4. Gaps in Employment, Consumption, and Poverty Data	Resume and strengthen PLFS, CES, and conduct Census 2021 promptly
5. Underrepresentation of Informal Sector	Improve coverage of unorganised sector through field surveys and local economic data
6. Political Interference in Statistical Processes	Ensure institutional autonomy of NSO and MoSPI; involve independent statisticians
7. Global Scrutiny as India Rises in Rankings	Align with UN System of National Accounts (SNA) and international norms
8. Sectoral Distortions in Manufacturing and Services	Update sectoral classification and pricing with current market practices and digital economy
9. Investor Skepticism due to inconsistent indicators	Publish real-time metadata, provide methodological transparency, and encourage dialogue with experts
10. Lack of Real-Time High-Frequency Indicators	Integrate real-time data tools (e.g., e-invoicing, GST analytics, UPI trends) in GDP estimation

Conclusion

GDP data is like the report card of a country’s economy. For people to believe in this report card, the data must be honest, timely, and updated. In today’s world, where India is attracting global attention, the need for credible and updated GDP data is more important than ever. Strengthening the statistical system with transparency, independence, and modern techniques is not just good practice. it is essential for India’s growth story to be trusted, both at home and across the world.

What is MCA-21?

MCA-21 is an electronic governance initiative launched by the Ministry of Corporate Affairs (MCA).
It is an online portal where companies in India are legally required to file their financial statements and annual returns.

Key Features of MCA-21:

Aspect	Details
Launched by	Ministry of Corporate Affairs, Government of India
Purpose	To automate and streamline filing and access to company-related data
Data it collects	Balance sheets, profit and loss accounts, shareholding patterns, etc.
Users	Companies registered under the Companies Act, regulators, policymakers
Relevance to GDP	Used as a key data source for estimating Private Corporate Sector (PCS) activities in GDP

Periodic Labour Force Survey (PLFS)

Aspect	Details
Full Form	Periodic Labour Force Survey
Conducted by	National Sample Survey Office (NSSO) under the Ministry of Statistics and Programme Implementation (MoSPI)
Launched in	2017, replacing the older Employment-Unemployment Surveys
Purpose	To collect labour force data more frequently and timely
Frequency	Annual (for rural + urban), Quarterly (for urban areas)
Key Indicators	Labour Force Participation Rate (LFPR), Worker Population Ratio (WPR), Unemployment Rate (UR), employment by sector/type
Use in GDP	Helps in estimating employment trends and workforce structure, especially in the informal sector

Consumer Expenditure Survey (CES):

Aspect	Details
Full Form	Consumer Expenditure Survey
Conducted by	National Sample Survey Office (NSSO)
Last conducted	2011–12 (the 2017–18 round was scrapped due to data quality concerns)
Purpose	To estimate household consumption expenditure on goods and services
Frequency	Typically every 5 years
Key Indicators	Monthly per capita expenditure, poverty line estimates, consumption patterns across regions, income classes
Use in GDP	Forms the basis for Private Final Consumption Expenditure (PFCE) in GDP and poverty/inequality measurement

Ensure IAS Mains MCQ

Q. Revising the base year for GDP calculation is essential for reflecting the true structure and performance of an evolving economy. Discuss the rationale, significance, and controversies associated with the periodic revision of GDP base year in India. Also suggest ways to improve the credibility and accuracy of GDP estimates. (250 Words)

Ensure IAS Prelim MCQ

Question:

With reference to the Consumer Price Index (CPI) in India, consider the following statements:

CPI is compiled and released by the Reserve Bank of India.
CPI (Combined) is used as the official measure of retail inflation in India.
CPI includes both goods and services consumed by households.

Which of the statements given above is/are correct?

(A) 1 and 2 only
(B) 2 and 3 only
(C) 1 and 3 only
(D) 1, 2 and 3

Answer: B

Explanation:

Statement 1 is Incorrect. CPI is compiled and released by the National Statistical Office (NSO) under the Ministry of Statistics and Programme Implementation (MoSPI), not by the Reserve Bank of India (RBI).
Statement 2 is Correct. The CPI (Combined), which aggregates both rural and urban price data, is the official measure of retail inflation used by the RBI for inflation targeting.
Statement 3 is Correct. The CPI basket includes both goods (like food, fuel, clothing) and services (like education, healthcare, transport) consumed by households.

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Revising GDP Base Year

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