How COVID-19 derailed govt's plan on GDP and CPI

The revision of the consumer price index and GDP base years from 2011-12 and 2012, respectively, were dependent on the outcomes of the consumer expenditure survey of 2017-18 that the government decided to junk recently.

The recession forecast caused by the COVID-19 pandemic has derailed the government’s plans to carry out the consumer expenditure survey in 2020-21, further delaying the base revision exercise for the country’s key macro-economic indicators and raising data quality concerns.

The revision of the consumer price index and GDP base years from 2011-12 and 2012, respectively, were dependent on the outcomes of the consumer expenditure survey of 2017-18 that the government decided to junk recently.

Besides challenges related to carrying out field surveys amid the pandemic, primary concern pertains to the current year not being a normal economic year.

Base year revision process is recommended on a five-year basis to keep up with the structural changes in spending patterns; however, it should be a normal economic year.

The government had earlier decided to revise the base year from 2011-12 to 2017-18.

If the survey is conducted in 2021-22, or 2022-23, the base year revision would finally happen much after 2025-26, an over 15-year gap in revision.

Former chief statistician of India, Pronab Sen, who heads a committee to improve quality of Indian statistics, told Business Standard that CPI and GDP were ‘seriously outdated’ and needed a revision.

“The GDP based on 2011-12 is already very old. The revision should have been done sometime around 2017-18, and that’s why the consumer expenditure survey was taken up.”

He said that while 2020-21 was completely ruled out for carrying out the survey, the government would have to take a call for 2021-22 and see whether it would be a normal year.

“FY21 will see negative growth. But even if you recover from it, it should seem that the normal growth momentum is returning and that one could use it as a base year. The base should capture a stable economy,” said Sen, who has estimated GDP to contract 10.8 per cent with first three quarters reporting negative growth.

Meanwhile, ratings agency Crisil has projected 2020-21 to see the worst recession in country’s history, with GDP to contract by 5 per cent.

It has said that about 10 per cent of GDP in real terms could be permanently lost, so going back to the pre-COVID growth level was unlikely over the next three years.

The earlier GDP base was revised from 2004-05 to 2011-12.

The 2008 SNA guidelines recommend base revision every five years.

In the earlier case, the GDP base was initially to be revised from 2004-05 to 2009-10, but it turned out to be quite an abnormal year with the financial crises and the drought.

“The financial crises were such that we didn’t know how long it was going to play out, so we decided to go with 2011-12,” Sen said.

On whether the government should consider revisiting the consumer expenditure survey carried out in 2017-18, Sen said it would be pointless as that year saw two economic shocks - demonetisation and the introduction of goods and services tax.

The leaked CES report for 2017-18 showed that consumer spending fell for the first time in more than four decades.

PC Mohanan, former chairman of National Statistical Commission, said all statistical activities would come to a standstill, as besides the fact that collection of data would be near impossible amid the Covid-19 pandemic for the next few months, the current year will not be a normal year.

“More than GDP, it is the CPI that will need a revision as consumption patterns of people change and are required to be revised. GDP, on the other hand, is not as much a worry.

"It can continue with the current base for some more time as the companies’ data is already getting updated from the MCA 21 database,” he said.

The entire expenditure side of national accounts depends on the consumer expenditure survey.

The expenditure side comprises data indicators pertaining to trade, private investments, government spending, and demand.

The production side of national accounts is based on various enterprise surveys.

Before the pandemic struck in March, the Centre had put on hold indefinitely all the surveys and economic census following reports of attack on surveyors due to the National Register of Citizens (NRC) fears.

Sen said fears related to the Citizenship Amendment Act  and NRC remained, and  appeared to be overshadowed by COVID-19.

“Hence, may resurface again later. That is another challenge because if households do not cooperate, there can’t be a survey,” he added.

Initially, the national accounts series were revised every 10 years in line with the Census, which was later changed to every five years since 1993-94, using the employment and unemployment surveys.

The NSS consumer expenditure survey (CES) measures the household consumption level and patterns related to living standards.

The CES is used to provide the budget shares of different commodity groups for the rural and urban population, which is used to prepare the weighting diagram for official consumer price indices.