India's new GDP calculation is correct: Panel

The panel finds 'discrepancy' in the Annual Survey of Industries data.

Contrary to the lingering criticism of India's revised gross domestic product (GDP) numbers, the audit panel on official statistics led by National Statistical Commission (NSC) chairman Pronab Sen has found the calculation and methodology used for the manufacturing segment of GDP to be 'perfect'. 

However, the yet-to-be released report has pointed to discrepancy in the Annual Survey of Industries (ASI) data, which might be underestimating manufacturing growth in the GDP by up to one percentage point.

About half the manufacturing companies registered under the Companies Act are not in the ASI list, used to compute GDP.

However, the reliance on ASI has come down in the revised GDP methodology because data given on MCA-21, an initiative of the ministry of corporate affairs, and other sources are now used more. 

This would be the first report of the Sen panel and it would then assess the calculation and methodology for the services segment of GDP. 

"We have looked at the calculations of the new GDP, and they are perfectly fine. The methodology used is also perfect, given that the ministry of corporate affairs (MCA) data used in the revised series is certainly the most complete database we can use," a key source privy to the report said. 

However, he pointed out that an inherent issue with the GDP numbers arising out of under-coverage of ASI remained unaddressed, resulting in the underestimation of manufacturing growth and hence, the national accounts numbers.

This means that GDP numbers were, in fact, understated whereas the criticism was that these overestimated the economic growth. 

As many as 70,000 manufacturing companies registered under the Companies Act have not been captured under the ASI because these establishments aren't registered under the Factories Act. The ASI tracks only the companies listed under the Factories Act. 

"The discrepancy was discovered after we compared the two lists. Clearly, the registration process is faulty. It implies the entire ASI list is faulty. There would be serious discrepancies in the number of proprietorship and partnership firms as well," said the source. 

The three-member panel also had the former head of the Central Statistics Office (CSO) A C Kulshreshtha and NSC member Ramesh Koli audit the manufacturing sector data used in the new series of national accounts. Although with the revision in the base year of GDP to 2011-12, the CSO has started using the MCA21 database of 520,000 companies to compute manufacturing growth, the ASI data is used for partnership and proprietorship firms. Beside the index of industrial production is still used to estimate the quarterly and the first advance estimate of GDP. 

Moreover, the ASI is used to weigh the wholesale price index (WPI), used as a deflator for national accounts to give GDP numbers adjusted to inflation, technically called real GDP.

"So, all this discrepancy is arising out of infirmity of the ASI and manufacturing growth will be underestimated. We need to correct this," the key source said. 

The ASI, as mentioned, covers units registered under the Factories Act. To register, these companies need 10 or more workers on any day of the previous year if the manufacturing uses a power source of some kind. If no power is used, the minimum number of employees should be 20. 

India's GDP numbers were revised with the base year of 2011-12 from the earlier 2004-05.

While it is a routine matter to revise the base year, the methodology of calculating GDP itself was changed.

For the purpose of growth, the new methodology takes GDP at market prices into account, which include indirect taxes and excludes subsidies.