Why in NEWS
The Ministry of Statistics and Programme Implementation (MoSPI) has announced a revision in the GDP base year from 2011–12 to 2022–23, with data set to be released on February 27, 2026. The Index of Industrial Production (IIP) base year will also shift to 2022–23, and the Consumer Price Index (CPI) to 2023–24. This follows recommendations by the Advisory Committee on National Accounts Statistics (ACNAS), chaired by Biswanath Goldar, to align GDP with other macroeconomic indicators like WPI, CPI, and IIP.
Key Concepts
| Term/Concept | Description |
|---|---|
| GDP Base Year | Reference year used to calculate real GDP, adjusting for inflation. Currently 2011–12, being revised to 2022–23. |
| MoSPI | Ministry of Statistics and Programme Implementation – responsible for national statistics. |
| IIP | Index of Industrial Production – measures industrial sector output. |
| CPI | Consumer Price Index – tracks retail inflation. |
| ACNAS | Advisory body recommending statistical revisions to national accounts. |
| Double Deflation | A method to adjust both inputs and outputs for price changes, offering more accurate real GDP. |
| MCA-21 | Ministry of Corporate Affairs’ database used to track corporate sector performance. |
News in Simple Terms
India updates its GDP base year approximately every 5 to 10 years to better reflect the current economic structure and inflation levels. The upcoming revision to 2022–23 will help incorporate:
- Post-Covid structural shifts like healthcare expansion
- Growing digital, gig, and green sectors
- Updated price levels and consumption patterns
Previous plans to revise the base to 2017–18 were dropped due to unreliable data and economic disruptions like demonetisation and the pandemic.
What is the GDP Base Year?
| Aspect | Details |
|---|---|
| Definition | The base year is the reference year against which future GDP values are compared to measure real economic growth. |
| Current Base Year | 2011–12 |
| Purpose of Revision | – Inclusion of new/emerging industries – Removal of outdated sectors – Adoption of improved data sources & methods – Accurate inflation-adjusted (real) GDP measurement |
| Ideal Characteristics of Base Year | – Free from anomalies (e.g. droughts, pandemics, demonetisation) – Not too distant in the past – Statistically “normal” year |
| Frequency of Revision | Ideally every 5–10 years |
| Upcoming Revision (2026) | Base year to be changed from 2011–12 to 2022–23 |
| Historical Frequency | 8th update since Independence; earlier revisions: 1948–49 → 1960–61 → … → 2004–05 → 2011–12 |
| First National Income Estimates | Compiled in 1949 by the National Income Committee chaired by P.C. Mahalanobis |
| 2017–18 Revision Dropped Due To | – PLFS data showing record unemployment – CES 2017–18 rejected (poverty concerns) – Economic disruptions: Demonetisation (2016), GST (2017), Covid-19 (2020) |
Rationale Behind GDP Base Year Revisions
| Reason | Explanation |
|---|---|
| 1. Reflects Structural Economic Changes | – India’s economy has transitioned from agrarian-based to services-led (55% of GDP). – Helps capture new sectors like digital economy, gig work, and renewables. – Excludes declining sectors like outdated manufacturing industries. |
| 2. Improves Data Accuracy & Methodology | – Uses updated data sources like MCA-21 for corporate sector. – Aligns with UN System of National Accounts (SNA) guidelines. – Revises informal sector estimates using NSSO and PLFS data. |
| 3. Removes Inflation Distortions | – New base year applies updated price weights, reflecting current prices. – Prevents overestimation of sectors that were cheaper in old base years (e.g., IT in 2011-12). |
| 4. Supports Policy & Investment Decisions | – Provides a realistic economic picture for government policy formulation. – Enables businesses and investors to make informed decisions. – Enhances credibility with global institutions (IMF, World Bank, rating agencies). |
| 5. Corrects Past Anomalies | – The 2015 revision faced criticism for overestimating GDP due to corporate data bias. – Delay in revision since 2011–12 (skipped 2017–18) makes the update critical. – New base year will capture Covid-era changes, GST formalisation, and PLI scheme impacts. |
Key Challenges in GDP Base Year Revision
| Challenge Area | Details |
|---|---|
| 1. Methodological Concerns | – 2015 revision relied heavily on MCA-21 corporate data, sidelining IIP and ASI. – Resulted in large firm bias, overstating profits of big companies and ignoring small enterprises. |
| 2. Informal Sector Undercoverage | – 93% of India’s workforce is in the informal sector (Economic Survey 2018–19). – Patchy data from street vendors, small units, and informal MSMEs leads to underestimation of actual GDP. |
| 3. Single vs. Double Deflation | – India currently uses single deflation, adjusting only with CPI/WPI. – Double deflation (separately adjusting input and output prices) is more accurate, especially for manufacturing. |
| 4. Data Discrepancies | – Robust GDP figures are contrasted by weak private consumption trends. – Suggests underreporting or faulty inflation adjustment in GDP deflators. |
| 5. Back Series & Historical Comparisons | – Revising past GDP data to match the new base year is technically difficult. – The 2018 back series drew criticism for understating past growth, sparking political debates. |
| 6. Credibility & Global Perception | – 2015 revision faced backlash for inflated growth rates due to method shifts. – Poor sectoral weighting (e.g., digital economy) can damage India’s economic credibility, affect FDI inflows, and market stability. |
How to Make India’s GDP Base Year Revision More Reliable
| Strategy | Details |
|---|---|
| 1. Adopt a Hybrid Data Approach | – Combine MCA-21 with ASI, IIP, NSSO for balanced coverage. – Conduct annual enterprise surveys for MSMEs and unorganised sectors. – Use big data analytics from e-commerce, gig platforms. |
| 2. Improve Informal Sector Coverage | – Increase sample size and frequency of PLFS & CES. – Leverage Aadhaar-linked data for better tracking of informal employment and income. – Use UPI, GST, EPFO data to capture informal GDP more accurately. |
| 3. Shift to Double Deflation | – Adjust both output and input prices separately. – Crucial for sectors like manufacturing and agriculture where input costs fluctuate. – Align with UN SNA 2008 global standards. |
| 4. Enhance Transparency | – Publish a technical white paper explaining sectoral weight changes, deflator selection, and back-series construction. – Address past issues like corporate data overdependence (2015 revision). – Conduct peer reviews with experts from IMF, World Bank, and academia. |
| 5. Institutionalize Regular Revisions | – Set a clear schedule for base year updates (every 5–10 years). – Prevent delays like the scrapped 2017–18 revision. – Use AI and high-frequency indicators (e.g., electricity demand, freight movement) for real-time GDP estimation. |
| 6. Address Sectoral Gaps | – Update weights for digital services (UPI, OTT), renewables, startups. – Reassess outdated industries like traditional textiles and print media. |
In a Nutshell
Memory Code: “REALIGN 23”
R – Reflects new economy
E – Enhances accuracy
A – Avoids inflation distortion
L – Latest data inclusion
I – Informs policies
G – Global credibility
N – Normal year benchmark
23 – New base year = 2022–23
Prelims Practice Questions
- Which of the following is the correct new base year for India’s GDP calculation to be released in 2026?
A. 2017–18
B. 2022–23
C. 2020–21
D. 2023–24 - Which of the following committees is responsible for advising on the GDP base year revision?
A. Kelkar Committee
B. Rangarajan Committee
C. Biswanath Goldar Committee
D. Bimal Jalan Committee - What is a key reason the 2017–18 base year revision was dropped?
A. Political transition
B. Inflation rise
C. GST and Demonetisation effects
D. Climate change impacts
Mains Questions
- (GS Paper 3 – Economy)
Discuss the importance and challenges of revising the GDP base year in India. Suggest steps to ensure a more accurate and transparent GDP estimation process. - (GS Paper 3 – Economy)
“National income data forms the foundation of economic policymaking.” Examine how the revision of the GDP base year can influence policymaking and investor confidence.
Prelims Answers with Explanation
| Q No. | Answer | Explanation |
|---|---|---|
| 1 | B | The new base year for GDP is set to 2022–23. |
| 2 | C | The Advisory Committee chaired by Biswanath Goldar is overseeing the revision. |
| 3 | C | GST, demonetisation, and poor data quality led to the cancellation of the 2017–18 revision. |
