Approach:

Introduction: Concept of GDP and National Income, the new series announced.
Body: Briefly mention the differences between the computing methodology between before and after the year 2015.Mention change in GDP, induces changes in national income.

Conclusion: Write a conclusion discussing the impact of change in computation methodology

Ans: The Gross Domestic Product (GDP) is the market value of all final goods and services produced within an economy in a given period. The GDP data is calculated by National Statistical office (NSO). It serves as a crucial metric for assessing the overall health and growth of an economy. In 2015, an announcement was made regarding a new series for calculating India’s GDP. The objective of this update was to enhance the methodology by incorporating new data sources and aligning it with the standards set by the United Nations (UN).

National income is the same as the net national product at factor cost. We get the net national product at factor cost by subtracting depreciation allowances from the gross national product at factor cost.

The difference between computing methodology of GDP before and after the year 2015: The new methodology introduced in 2015 brought several significant changes to the calculation of India’s GDP. Here are the key differences between the old and new methodologies:

Change in Base Year:

Pre-2015: The base year for GDP calculation was 2004-05.
Post-2015: The base year was updated to 2011-12. This change aimed to align the calculation with global practices and capture economic information more accurately.

Data Sources for Measuring Manufacturing Sector Growth:

Pre-2015: Manufacturing sector performance was assessed using data from the Index of Industrial Production (IIP) and the Annual Survey of Industries (ASI), covering over two lakh factories.
Post-2015: Data from firms’ annual accounts filed with the Ministry of Corporate Affairs (MCA 21) was utilised, encompassing around five lakh companies. This shift aimed to provide a more comprehensive and detailed representation of the manufacturing sector.

GDP Calculation Method:

Pre-2015: GDP at factor cost was calculated.
Post-2015: The international practice of GDP at market price was adopted. Additionally, for sector-wise estimation, Gross Value Added (GVA) at basic price was used. This change involved considering not only the cost of production but also product subsidies and taxes.

Calculation of Labor Income:

Pre-2015: All labour inputs were considered equal.
Post-2015: The new methodology introduced the concept of “effective labour input” and assigned different weights based on whether an individual was an owner, a hired professional, or a helper. This change aimed to provide a more nuanced assessment of labour income.

Value Addition in Agriculture:

Pre-2015: Value addition in agriculture was limited to farm produce.
Post-2015: The new methodology expanded the scope of value addition in agriculture beyond farm produce. Livestock data became a critical component of the calculation.

Inclusion of Financial Sector Income:

Pre-2015: Financial corporations in the private sector, excluding banking and insurance, were limited to a few mutual funds and estimates compiled by the Reserve Bank of India (RBI) for Non-Government Non-Banking Finance Companies.
Post-2015: The coverage of the financial sector expanded to include stockbrokers, stock exchanges, asset management companies, mutual funds, pension funds, and regulatory bodies such as SEBI, PFRDA, and IRDA. This change aimed to capture the income generated by a broader range of financial institutions and activities.

NNP at Factor cost = GNP at Factor Cost – Depreciation allowance.

Since national income computation is closely linked with the GDP computation, impacts on national income computation would also be seen.

Hence, we can say that the new methodology is statistically more robust as it incorporates a broader range of indicators, including consumption, employment, and enterprise performance. It also takes into account factors that are more responsive to current changes, making the estimation process more accurate and dynamic

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