Prime Minister of India in Kannada for UPSC | ಭಾರತದ ಪ್ರಧಾನ ಮಂತ್ರಿ

 

Issues with the New System of Calculating National Income and GDP

The revised system of calculating national income and GDP, introduced in 2015, brought methodological improvements but also raised significant concerns:

1. Dependence on MCA-21 Database:
   The new method relies heavily on corporate data from the Ministry of Corporate Affairs (MCA-21). However, many small and informal enterprises, which constitute a large part of India’s economy, are not covered, leading to underrepresentation of the informal sector.

2. Inadequate Informal Sector Representation:
   Despite efforts to improve coverage, the informal economy remains poorly captured. This skews GDP estimates, especially in a country where over 40% of the economy is informal.

3. Base Year Limitation:
   The base year (2011-12) does not reflect the structural changes in the economy, such as digitalization and post-pandemic shifts, leading to outdated comparisons.

4. Transparency Issues:
   The lack of clarity regarding assumptions and methodologies used in the MCA-21 database has raised doubts about the reliability of GDP estimates.

5. Overestimation of Growth:
   Critics argue that the revised method tends to show higher growth rates, potentially overstating the actual economic performance.

6. Frequent Data Revisions:
   GDP figures are subject to frequent updates, creating uncertainty for policymakers and stakeholders relying on initial estimates.

Conclusion

While the new system aligns with international standards and improves data collection, challenges such as inadequate informal sector representation, limited transparency, and outdated base year selection undermine its credibility. Addressing these issues is crucial to ensure accurate and reliable measurement of India’s economic performance.

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