Q. Explain the difference between computing methodology of India’s Gross Domestic Product (GDP) before the year 2015 and after the year 2015. (150 words, 10 Marks)
Why the Question?
UPSC PYQ – CSE Mains – 2021
Keywords of the Question
- Difference between computing methodology
- India’s Gross Domestic Product (GDP)
- Before and after 2015
Directive Word
Explain – Clarify a topic by giving a detailed account as to how and why it occurs, or what is meant by the use of this term in a particular context. Your writing should have clarity so that complex procedures or sequences of events can be understood; defining key terms where appropriate, and be substantiated with relevant research.
How to approach this Question?
Introduction
- Start with a brief definition of GDP and its importance as an economic indicator.
- Mention the year 2015 as a significant point when India revised its GDP calculation methodology.
Body
- Base Year Change:
- Pre-2015: Base year was 2004-05.
- Post-2015: Base year updated to 2011-12 to better reflect current economic conditions.
- Data Sources:
- Pre-2015: Relied on Index of Industrial Production (IIP) and Annual Survey of Industries (ASI).
- Post-2015: Uses data from MCA 21 database, covering more companies.
- Calculation Method:
- Pre-2015: GDP at factor cost.
- Post-2015: GDP at market prices, aligning with international standards.
- Sectoral Estimates:
- Pre-2015: Limited to traditional sectors.
- Post-2015: Includes broader sectors like financial services and real estate.
- Calculation of Labour Income
- Pre-2015: Outdated surveys.
- Post-2015: Periodic Labour Force Survey (PLFS)
- Value Addition in Agriculture:
- Pre-2015: Limited to farm produce.
- Post-2015: Beyond farm produce.
Conclusion
- Summarize the key differences and their implications.
- Highlight how the new methodology provides a more accurate and comprehensive picture of the economy.
Note: Please note that the following ‘answers’ are not ‘model answers’ nor are they synopses in the strictest sense. Instead, they are content designed to meet the demands of the question while providing comprehensive coverage of the topic.
Answer Key
Introduction
Gross Domestic Product (GDP) is a crucial economic indicator that measures the total value of goods and services produced within a country. In 2015, India revised its GDP calculation methodology to better reflect the contemporary economic landscape.
Body
Base Year Change:
- Pre-2015: The base year was 2004-05.
- Post-2015: The base year was updated to 2011-12. This change was made to ensure that the GDP calculation reflects more recent economic activities and price levels.
Data Sources:
- Pre-2015: Relied on the Index of Industrial Production (IIP) and the Annual Survey of Industries (ASI).
- Post-2015: Uses data from the MCA 21 database, which includes information from a larger number of companies. This provides a more comprehensive and accurate picture of the corporate sector.
Calculation Method:
- Pre-2015: GDP was calculated at factor cost, which excluded taxes and included subsidies.
- Post-2015: GDP is calculated at market prices, which includes taxes and excludes subsidies. This aligns with international practices and provides a more accurate measure of economic activity.
Sectoral Estimates:
- Pre-2015: Limited to traditional sectors like agriculture, industry, and services.
- Post-2015: Includes broader sectors such as financial services, real estate, and professional services. For example, the inclusion of IT services better captures the contribution of this rapidly growing sector.
Calculation of Labour Income:
- Pre-2015: Labour income was estimated using outdated surveys and less frequent data collection.
- Post-2015: Labour income is calculated using more frequent and comprehensive surveys, such as the Periodic Labour Force Survey (PLFS). This provides a more accurate representation of wages and employment trends across various sectors.
Value Addition in Agriculture:
- Pre-2015: Value addition in agriculture was limited to farm produce.
- Post-2015: The new methodology expanded the scope of value addition in agriculture beyond farm produce. Livestock data became a critical component of the calculation.
Conclusion
The revision in 2015 aimed to provide a more accurate and comprehensive measure of India’s economic activities. By updating the base year, expanding data sources, aligning with international standards, and including broader sectors, the new methodology offers a clearer picture of the economy’s performance and growth dynamics. The improved calculation of labour income ensures that the contributions of the workforce are better reflected in the GDP figures.