The government has announced its decision to change the twenty years for the calculation of GDP from 2011-12 to 2022-23.
A base year is a standard for calculating GDP by removing the effects of inflation, allowing economic growth to be compared over time.
The government on Monday announced its decision to change the twenty-year period for calculating GDP from 2011-12 to 2022-23. This important initiative aims to provide a more accurate reflection of the current economic structure and improve policy making.
What is a base year, and why is it important to update it?
A base year is a standard for calculating GDP by removing the effects of inflation, allowing economic growth to be compared over time. Updating the base year is important because it ensures that GDP data reflects the latest economic activity, consumption patterns and industry contributions.
Also read: What is GDP and how is it calculated in India? You need to know.
The shift from 2011-12 to 2022-23 is particularly relevant as the Indian economy has undergone considerable changes over the past decade. New sectors have emerged, digitization has accelerated, and the economy has adapted to post-pandemic realities.
The 2011-12 GDP base year was determined in January 2015 when the Central Statistics Office (CSO), now part of the Ministry of Statistics and Program Implementation (MOSPI), compiled the National Accounts. Revised the base year to apply.
Key reasons for change
1. Reflecting structural changes:
The Indian economy has seen a significant shift towards services and technology. The old base year may not adequately capture the contribution of these fast-growing sectors.
2. Adding new data sources:
Since 2011-12, the availability of high-frequency data has increased, such as digital payment data, e-commerce metrics, and real-time trade data. These sources will provide more accurate information for the calculation of GDP.
3. Post-Pandemic Economic Scenario:
The COVID-19 pandemic has reshaped global and domestic economic dynamics. By using 2022-23 as the base year, the government aims to incorporate these changes and provide a more accurate assessment of the economic recovery.
4. International Comparison:
The biennial update aligns India’s GDP calculation methods with international standards, ensuring consistency and comparability with global economies.
Implications of base year change
1. Revised Growth Estimates:
This change is likely to revise past GDP growth rates, which will provide a clearer picture of economic trends. It may show faster or slower growth in certain years, affecting policy evaluation.
2. Policy formulation:
More accurate GDP data helps the government make targeted economic policies, especially in key sectors such as health, education and infrastructure.
3. Investor Confidence:
Transparent and updated economic data improves investor confidence, as it reflects the true state of the economy.
The result
Changing the base year of GDP to 2022-23 is a step forward by the government. It ensures that economic assessments are in line with current realities, promotes better decision-making and enhances India’s reputation globally. This recalibration will play an important role in shaping the country’s economic trajectory in the coming years.