Context:
The International Monetary Fund (IMF) has raised serious concerns over India’s GDP and GVA estimation methodology, assigning a ‘C’ grade (second lowest) to India’s national accounts statistics. The concerns mainly relate to the reliability of unorganised sector estimation, which forms a substantial share of the Indian economy.
Key Highlights:
GDP Data Assessment by IMF
- IMF assigned a ‘C’ grade to India’s GDP and GVA statistics, indicating limited reliability.
- India reported 8.2% GDP growth in Q2, but IMF flagged issues in the methodology behind the numbers.
Methodological Concerns
- India uses organised sector growth as a proxy to estimate the unorganised sector output.
- Experts such as Pronab Sen and Arun Kumar have termed this method “less than reliable.”
Unorganised Sector Issues
- The unorganised sector contributes nearly 30% of GDP (excluding agriculture).
- Lack of real-time data, absence of regular surveys, and poor registration affect accuracy.
Impact of Economic Shocks
- Events like Demonetisation (2016), GST rollout (2017), and COVID-19 pandemic impacted organised and unorganised sectors differently.
- Proxy-based estimation failed to capture these divergent trends, leading to distortions.
Government Response
- The Ministry of Statistics and Programme Implementation (MoSPI) is working on:
- Updating GDP base year
- Revising estimation methodology
- Revised framework expected by end of February.
Relevant Prelims Points:
- Issue: Reliability of GDP estimation due to inadequate measurement of the unorganised sector.
- Causes:
- Heavy reliance on organised sector proxies
- Lack of frequent surveys and real-time data
- Government Initiatives:
- Periodic Economic Census
- GDP base year revision
- Benefits of Accurate Estimation:
- Better policy formulation
- Improved fiscal planning
- Challenges:
- Informality, cash-based operations
- Low data compliance
- Impact:
- Affects global credibility, investor confidence, and policy effectiveness.
Relevant Mains Points:
- Key Definitions:
- GDP: Total value of final goods and services produced within a country.
- GVA: Value added by all producers minus intermediate consumption.
- Institutions Involved:
- IMF, MoSPI, National Statistical Office (NSO)
- Conceptual Issues:
- Proxy estimation vs real data collection
- Data asymmetry between sectors
- Static Linkages:
- Informal economy in developing countries
- Statistical capacity as a governance indicator
- Way Forward:
- Strengthen data collection mechanisms for informal sector
- Increase frequency of surveys
- Use technology-based data tools (GST, digital payments, labour databases)
- Enhance transparency and international comparability of statistics
UPSC Relevance (GS-wise):
- GS 3: Indian Economy – National Income Accounting, Informal Sector
- GS 2: Governance – Institutional capacity, Evidence-based policymaking