Why in the News?

India will update the base year for calculating GDP to 2022–23, and the new data is expected by February 2026. This change, confirmed by Saurabh Garg from the Ministry of Statistics, is an important step to improve the accuracy and trust in India’s economic data both in the country and around the world.

Why is the base year for GDP being revised to 2022-23?

• To Reflect Structural Changes in the Economy: India’s economy has shifted significantly from agriculture to services and digital sectors. Revising the base year captures these structural shifts more accurately. Eg: The rise of digital platforms, fintech, and gig economy post-2015 needs to be incorporated into GDP estimates.
• To Incorporate Improved and Updated Data Sources: New datasets such as the Periodic Labour Force Survey (PLFS) and administrative records like MCA-21 provide more comprehensive and timely data for accurate GDP computation. Eg: PLFS helps capture employment trends better than the older Employment-Unemployment surveys.
• To Ensure Compatibility with International Standards and Better Inflation Adjustment
  Regular base year revisions align with UN and IMF guidelines and help in more precise estimation of real GDPby adjusting for price changes. Eg: Without a revision, outdated price structures (like 2011-12) may overstate or understate real growthdue to inflation distortions.

What challenges delayed the previous GDP base year revision in 2017-18?

• Data Quality Concerns in Key Surveys: The government raised concerns about the credibility of the Consumer Expenditure Survey (CES) and Periodic Labour Force Survey (PLFS) conducted in 2017-18. Eg: CES showed a decline in consumer spending, suggesting rising poverty — a politically sensitive finding that was never officially released.
• Economic Disruptions during the Reference Year: Major policy shocks such as demonetisation (2016) and the introduction of Goods and Services Tax (GST) in 2017 led to economic volatility, making 2017-18 an unsuitable “normal” year for baseline calculations. Eg: GDP growth fell from 8.3% in 2016-17 to below 4% by 2019-20, reflecting prolonged economic slowdown post these disruptions.
• Delayed Acceptance and Use of Survey Results: While the PLFS findings were eventually accepted after the 2019 elections, the CES was rejected, causing a gap in key inputs required for GDP revision. Eg: Without reliable consumption and employment data, the GDP estimation would lack accuracy, forcing the government to drop 2017-18 as the base year.

How does base year revision affect the credibility of India’s economic data globally?

• Improves Accuracy and International Comparability: A timely base year revision ensures that GDP estimates reflect current economic structures, making India’s data more credible and aligned with international standards (like those of IMF and UN). Eg: Including digital economy or renewable energy sectors helps match the metrics used by other G20 nations.
• Builds Investor Confidence: Transparent and methodologically sound revisions enhance global investor trust, which is crucial for foreign direct investment (FDI) and sovereign credit ratings. Eg: A credible GDP estimate influences decisions by agencies like Moody’s or Fitch, and reassures multinational corporations evaluating India’s market.
• Reduces Skepticism from Global Analysts: Past controversies—like the 2015 revision which some experts claimed overstated growth—have raised doubts on India’s data integrity. A robust 2022-23 revision can restore credibility. Eg: Even former Chief Economic Advisor Arvind Subramanian questioned past data quality; accurate revisions now can counteract such reputational damage.

Way forward: 

• Institutionalise Regular Data Revisions: Establish a fixed 5-year cycle for revising base years of GDP and other macroeconomic indicators, in line with National Statistical Commission recommendations, to ensure timeliness, consistency, and credibility.
• Enhance Data Transparency and Accessibility: Improve the quality, frequency, and public availability of key datasets like Consumer Expenditure Survey (CES), PLFS, and Census, to build trust among researchers, investors, and global institutions.

Mains PYQ:

[UPSC 2021] What are the main features of the estimation of India’s Gross Domestic Product(GDP) before the year 2015 and after the year 2015.

Linkage: The changes in GDP estimation around the 2015 revision, which is a prime example of the process of revising the base year and methodology. The “India’s GDP: Revising the Economic Base” source provides extensive details on this very topic, explaining the rationale and significance of such revisions, including the upcoming 2026 revision and its importance for India’s global standing.

Get an IAS/IPS ranker as your 1: 1 personal mentor for UPSC 2024

Attend Now