Explain the difference between computing methodology of India’s Gross Domestic Product (GDP) before the year 2015 and after the year 2015.
Introduction
India revised its Gross Domestic Product (GDP) computation methodology in 2015 to enhance accuracy and align with international standards.
Key Differences in GDP Computation
Pre-2015 Methodology
Before 2015, GDP was calculated with 2004-05 as the base year, primarily using GDP at Factor Cost.
Post-2015 Methodology
Post-2015, the base year shifted to 2011-12. GDP at Market Prices became the main measure, alongside Gross Value Added (GVA) at Basic Prices.
Key Enhancements and Rationale
- Expanded data coverage using the MCA21 database for corporate sector and improved financial corporation data.
- Aligned India's national accounts with the international standard System of National Accounts (SNA) 2008.
- Often resulted in higher reported GDP growth rates due to methodological changes and expanded coverage.
Conclusion
These changes provided a more comprehensive and globally comparable picture of India's economic performance.
125 words · target ~150
The directive 'explain' requires a clear, detailed, and comprehensive account of the differences, including reasons and implications.
Suggested structure
Introduction: Briefly state the context of the GDP methodology change in 2015.
Pre-2015 GDP Computation Methodology: Detail the base year and primary measure used.
Post-2015 GDP Computation Methodology: Detail the new base year, primary measure, and key enhancements.
Key Differences Summarized: A comparative analysis of the two methodologies.
Rationale for the Change: Explain the reasons behind adopting the new method.
Conclusion: Briefly discuss the implications or significance of the revised methodology.
Key points
Base Year Change: Shifted from 2004-05 to 2011-12.
Primary Measure Shift: GDP at Factor Cost was replaced by GDP at Market Prices as the main measure.
Introduction of GVA: Gross Value Added (GVA) at Basic Prices became a key measure to assess economic activity from the supply side.
Expanded Data Coverage: Utilized the MCA21 database for better coverage of the corporate sector, and improved coverage of financial corporations and local bodies.
International Alignment: Aimed to align India's national accounts with the System of National Accounts (SNA) 2008, an international standard.
Impact on Growth Rates: The new series often resulted in higher reported GDP growth rates due to methodological changes and expanded coverage.
Common mistakes
Incorrectly identifying the base years for the old and new series.
Confusing or not clearly explaining the difference between 'Factor Cost' and 'Market Price'.
Omitting the significance and definition of 'Gross Value Added (GVA) at Basic Prices'.
Failing to mention the expanded data sources, particularly the MCA21 database.
Difficulty: Medium — The question requires precise factual recall of specific changes in economic statistics methodology, including base years, primary measures (factor cost vs. market price), and data sources. While the broad change is known, detailing the exact differences accurately demands good recall of economic reforms.