ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Some Answers, Some Questions

The new national accounts uses more comprehensive data but there remain problems with the GDP estimates.

The Central Statistics Office’s (CSO) comprehensive revision of the National Accounts Statistics (NAS) series, consisting in the main of an incorporation of conceptual changes in line with United Nations (UN) guidelines, the use of new and more recent data sources and a shift in the base year from 2004–05 to 2011–12 has raised as many questions as has provided answers to what improvements should be made in the methodo­logy for estimating the size of the economy. While the statistical changes made in the 2011–12 NAS series are indeed commendable, a serious problem is the introduction of some new concepts and definitions that are based on pure accounting norms and ignore fundamental economic principles.

Three important changes have been made, based on the UN Systems of National Accounts (SNA) of 1993 and 2008. One, since the gross domestic product (GDP) at factor cost is a measureof income and not output, it should no longer be explicitlymeasured in the NAS. Two, GDP will instead be measured at market prices because transactions are valued at such prices. And three, an intermediary concept called GDP at basic priceshas been introduced covering value added at factor cost plus indirect taxes on production, net of production subsidies. But, first, GDP, or gross value added (GVA) at factor cost is very much a valid concept because value addition takes place solely because of the factors of production. Second, no economic logic canjustify inclusion of the government as a separate entity outside the factors of production, and then the inflation of value added by the so-called basic prices. We therefore venture to suggest that an academic debate is called for on the entire SNA frame of GDP definitions and that in the meanwhile the Government of India should continue to measure real GDP at factor cost and not in terms of real GDP at market prices.

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