Revision to raise GDP estimates to 8.9 % for 2010-11
19 Jul 2011
Credit rating agency CRISIL today said the revision of the base year for calculating the Index of Industrial Production (IIP) is expected to raise the 2010-11 GDP estimates from 8.5 per cent to 8.9 per cent.
The issue of IIP base year revision is just one of the many issues plaguing GDP estimation said the rating agency said in a statement.
CRISIL study identifies three other key issues responsible for undervaluing GDP growth - the current methodology does not accurately measure the contribution of the unorganised sector; estimates of the service sector GDP is constrained by the absence of appropriate price indices to convert nominal GDP into real GDP and; the GDP estimates do not account for improvement in the quality of goods.
Until recently IIP with the previous base-year of 1993-94 was being used to compute industrial GDP, which CRISIL says failed to capture the fast-changing industrial structure.
With the revision of the IIP base year to 2004-05, the revised IIP data shows a gross underestimation for 2007-08 with IIP estimates moving from up to 15.6 per cent, from 8.6 as per the 1993-94 base year weights.
In contrast for 2009-10, the new IIP base year halves industrial production to 5.3 per cent from 10.5 per cent and for 2010-11.
In a study titled How robust is India's GDP estimate?, Roopa Kudva, managing director and CEO, CRISIL, said, ''Large revisions in GDP estimates in recent years have led to questions on the robustness of these estimates. As the most important economic indicator, GDP estimates influence policy making at the highest level. Our study finds that the current method of computing GDP underestimates the size and growth of the Indian economy, and identifies four key issues with respect to accurate estimation of India's GDP.''
