New Delhi: The new methodology to calculate the gross domestic product (GDP) will indeed boost India's economy in current fiscal.
The Narendra Modi government's last week decision to change the base year, from 2004-05 to 2011-12, for computing national accounts was also lauded by opposition with former Finance Minister P Chidambaram saying the latest data, calculated as per the new formula, shows erstwhile UPA government regime succeeded to revive the economy.
"The new data conclusively establishes the fact that UPA succeeded to revive the economy. The revised GDP data will end misconceived charge that UPA mismanaged economy," he said.
The new formula has pushed up the economic growth rate for 2013-14 to 6.9 per cent, while earlier estimate on the basis of old series was 4.7 per cent. Similarly, the economic growth rate for 2012-13 has been revised upwards to 5.1 per cent, compared with 4.5 per cent estimated earlier.
Given below are few things to know about the new GDP methodology:
1. The new formula takes into account market prices paid by consumers. So far, the domestic GDP was calculated at basic cost which took into account prices of products received by producers.
2. The latest formula is in line with international practice -- calculated by adding GDP at basic cost and indirect taxes (minus subsidies). It will also help in changing the structure of economy.
3. Data for the new GDP series will now be collected from 5 lakh companies against 2,500 companies earlier.
4. Under-represented and informal sectors, items such as smartphones and LED television sets will now be taken into account to calculate GDP.
5. The revision does not alter the size of India's economy i.e. USD 1.8 trillion nor will it alter key ratios such as fiscal deficit, CAD etc.
6. The RBI will assess the new GDP data to set its monetary policy stance.
With this revised methodology, India is expected to grow at 6.6 per cent current fiscal against 5.5 per cent forecast.
The change in base year has been done to incorporate the changing structure of the economy, especially rural India.
What is GDP?
The gross domestic product is one the primary indicators used to measure economic the health of a country. It represents the total dollar value of all goods and services produced over a specific time period.
How it is calculated?
Measuring GDP is a complex thing. There are two ways to gauge the GDP -- by adding up what everyone earned or by adding up what everyone spent in a year.
