Subject: Economy

India's methodology for calculating Gross Domestic Product (GDP) underwent significant changes in 2015, marking a shift towards international standards and more comprehensive economic measurement.

Pre-2015 GDP Calculation Method

• The calculation was based on factor cost which primarily focused on income received by factors of production (land, labor, capital, entrepreneurship).
• Used 2004-05 as the base year for constant price calculations and price deflators.
• Data collection relied heavily on the Annual Survey of Industries (ASI) and limited coverage of unorganized sectors.
• The methodology followed the 1993 System of National Accounts (SNA) guidelines.
• Limited incorporation of financial intermediation services and informal sector activities.

Post-2015 GDP Calculation Method

• Shifted to market prices instead of factor cost, including indirect taxes and subsidies in the calculation.
• Updated to 2011-12 as the base year to better reflect structural changes in the economy.
• Adopted the 2008 UN System of National Accounts (SNA) guidelines for international compatibility.
• Introduced MCA21 database for better corporate sector coverage.
• Enhanced coverage of the financial sector and unorganized enterprises.

Key Improvements in New Methodology

• Broader Data Sources:
  • Incorporation of data from Ministry of Corporate Affairs.
  • Usage of private corporate sector data through statutory filings.
• Better Coverage:
  • Inclusion of financial intermediation services in service sector calculations.
  • Enhanced representation of the informal sector through surveys.
• Quality Improvements:
  • Advanced techniques for measuring value addition in various sectors.
  • Better estimation of government services and non-profit institutions.

The transition to the new methodology has aligned India with global best practices, providing a more accurate picture of economic activity. The adoption of market prices and updated base year has made GDP calculations more reflective of current economic realities, though challenges remain in capturing the entire informal sector effectively.