CLOCK TICKING TO RESET BASE YEAR FOR GDP CALCULATIONS

A Nimportant issue the new central government will face is the need to revise the base year for the purpose of Gross Domestic Product (GDP) and other key economic calculations.

A base year is the reference year whose prices are used to calculate, importantly, the real GDP growth rate. Such base year decisions are also relevant for other metrics such as the Index of Industrial Production, the Wholesale Price Index and the Consumer Price Index.

India currently follows the base year of 2011-12. The Central Statistical Office (CSO) in January 2015 announced 2011-12 as the base year for India's national accounts. The revision replaced the previous base year of 2004-05 and was in line with the recommendations of the National Statistical Commission, which advocated base year changes every five years.

Choosing the base year and revising it are important for any economy, since they track structural changes. Imagine, as an extreme case, that the base year of India had been unchanged at 1980-81 (an earlier series, which was later replaced by the 1993-94 series). The resultant GDP data with such an old base year would have been unable to capture the huge structural transformation that India underwent, especially since 1991, with the growth of the IT sector. A revision of the GDP and updating the base year thus allow statisticians to reweight the relative importance of different sectors of economic activity.

It also allows for further change or reconsideration of methods and data sources.