Difference in Calculating National Income: Before 2015 vs. After 2015
The method of calculating National Income in India underwent significant changes after 2015, which are important from the perspective of the UPSC Mains examination. These changes reflect updates in the base year, the method used for calculation, and the adoption of more accurate data sources. Below is a detailed comparison of the methods used before 2015 and after 2015:
Issues with the New System of Calculating National Income and GDP - Target IAS Kannada
For UPSC Mains:
Calculating National Income Before and After 2015
Before 2015, India used the GDP at Factor Cost method with a base year of 2004-05. The National Income data was mainly based on the National Accounts Statistics (NAS), using data from limited sources like the Annual Survey of Industries (ASI) and sample surveys. The informal sector was underrepresented, and the measurement of GDP components, especially investment, had data gaps.
After 2015, the base year for GDP was revised to 2011-12, and the methodology shifted to GDP at Market Prices (GVA at market prices). This change accounted for taxes and subsidies, providing a more comprehensive view of the economy. The new approach used improved data sources, including corporate financial statements, GST records, and digital transactions. It also better captured the informal sector and included more accurate measurements for the services and agricultural sectors.
Additionally, the adoption of the new GDP series improved the measurement of components like investment, consumption, and government spending, leading to more accurate national income figures. The post-2015 system is more aligned with international standards, offering real-time data and a clearer picture of economic health.
Read: Issues with the New System of Calculating National Income and GDP
In summary, after 2015, national income calculations became more accurate, inclusive, and timely due to better data sources, a revised base year, and the adoption of a more modern methodology. This allowed for a more realistic reflection of India's economic activity.
1. Base Year for Calculation
Before 2015:
- The base year for calculating national income was 2011-12.
- The 2011-12 base year was used for GDP calculations, which means that data from that year was used to compare with the current year for calculating real GDP and growth rates.
After 2015:
- The base year was revised to 2011-12 for GDP calculations but shifted the GDP measurement methodology to a new framework, using the 2011-12 as the base year for both nominal and real GDP calculations.
Key Impact:
- The base year revision aimed at making the national income statistics more accurate, considering the structure and growth patterns of the economy.
- It allowed for comparison based on the most recent data and improved methods for calculating GDP.
2. Methodology of Calculation
Before 2015:
- India used the old GDP estimation method known as the "GDP at factor cost".
- GDP at factor cost measured the output of the economy at the cost incurred by the factors of production (land, labor, capital, etc.).
- The data was derived mainly from the National Accounts Statistics (NAS) published by the Central Statistical Office (CSO).
After 2015:
- The National Statistical Commission (NSC) adopted the "GDP at market prices" method.
- GDP at market prices considers the value added at each stage of production but also includes taxes, subsidies, and other factors like inflation.
- The change involved a shift to a new method called "GVA at market prices" (Gross Value Added at market prices).
- Under this method, sector-wise GDP is derived from Gross Value Added (GVA) by using production data for sectors such as agriculture, manufacturing, and services.
Key Impact:
- The shift to the market price method from the factor cost method led to more comprehensive coverage, including taxes and subsidies, giving a more realistic view of the economy.
- The GVA at market prices method accounts for inflation and better reflects the impact of government policies like taxation and subsidies on economic activity.
3. Data Sources
Before 2015:
- National income data was primarily based on estimates derived from annual surveys and the Annual Survey of Industries (ASI), which covered large-scale industrial sectors.
- Other data sources included limited sample surveys, census data, and annual economic surveys.
After 2015:
- The introduction of the new GDP series (with base year 2011-12) used new and better data sources such as:
- Corporate financial statements
- National Sample Survey Office (NSSO) surveys
- New digital data sources such as GST and formal sector records from tax filings.
- Use of big data analytics and more comprehensive surveys led to better coverage of the informal economy and the services sector, which were previously difficult to measure accurately.
Key Impact:
- The move to more reliable and real-time data sources improved the accuracy and timeliness of GDP estimates.
- These changes made India's GDP data more aligned with international standards, such as those followed by the United Nations System of National Accounts (SNA).
4. Measurement of Unorganized Sector
Before 2015:
- The contribution of the unorganized sector (informal economy) to GDP was often underrepresented or inaccurately measured due to lack of robust data.
After 2015:
- After the introduction of the new methodology, there was better estimation of the unorganized sector, especially by incorporating GST data and Digital Transactions.
- Direct estimates of the informal sector were also included through improved enterprise surveys.
Key Impact:
- This improvement led to a more accurate representation of the informal sector in the national income, making GDP more reflective of the actual economic activities.
5. Change in the Measurement of GDP Components
Before 2015:
- GDP was measured mostly using the Expenditure Method (C + G + I + NX), but the Investment component was often difficult to accurately measure due to data gaps, especially in the informal sector.
After 2015:
- The New GDP series (post-2015) used the GVA at market prices methodology, which better captures investments and incorporates data from sectors that were previously underreported.
- The new methodology also improved the measurement of consumption and government expenditure, ensuring that they accurately reflected the growth and consumption patterns in the economy.
Key Impact:
- A more comprehensive measurement of GDP components provided better insights into the economy's health and growth drivers, improving policymaking and economic planning.
Summary of Key Differences:
| Aspect |
Before 2015 |
After 2015 |
| Base Year |
2004-05 |
2011-12 (revised) |
| Method of Calculation |
GDP at Factor Cost |
GDP at Market Prices (GVA at market prices) |
| Data Sources |
Limited data, annual surveys, ASI |
Improved data, including GST, formal sector data, big data |
| Measurement of Informal Sector |
Underrepresented |
Better representation due to digital records, GST |
| Sector-wise Data |
Less accurate for services and informal sectors |
More accurate for all sectors, including services |
| GDP Components |
Based on old methods with data gaps |
More comprehensive and accurate accounting of consumption, investment, and exports |
