Baseless change
Govt should prioritise releasing back series for national statistics
The Union ministry of statistics and programme implementation (MoSPI) has announced that it proposes to change the base year for most of the calculations of national statistics. At present, 2011-12 is the base year. MoSPI plans to rebase the calculations for gross domestic product (GDP), the index of industrial production (IIP), and the consumer price index (CPI) to the year 2017-18. These changes will be implemented in 2018-19 after the latest Employment Survey and Household Expenditure Survey are tabulated. These are all key macroeconomic variables used in the formulation of national policy. Fiscal and monetary policies are both tied to changes in GDP, which provides the reference for all other variables such as revenue collections and various deficits. Meanwhile, the IIP measures factory and mining output while the CPI is the official benchmark used by the Reserve Bank of India for assessing inflation. While it is normal practice to revise base years regularly for indexing key macroeconomic time series and accurately reflecting the changes that occur over time in the economy, yet, in order to be rigorous, such revisions (including the changes in methodology) must always be accompanied by backward calculations. Without the back series, it becomes difficult, if not impossible, to make substantial and meaningful assessments about the changes.
Moreover, if such changes are brought about too frequently, they can also cause a fair amount of confusion and make it very hard to read economic trends and understand policy impact. To some extent, that is what is happening at present as well. The base year for GDP calculations was last revised in 2014-15; it was changed from 2004-05 to 2011-12. In fact, even the calculation methodology for GDP was radically changed and the data sample was greatly expanded to include more companies. The IIP was revised even more recently — in 2017 — to a new base-year of 2011-12 from 2004-05. This also included revisions of weights. The wholesale price index (WPI) was revised in 2015 — again to 2011-12 from 2004-05, while a new integrated CPI was introduced to make it possible for the central bank to shift its focus for targeting inflation. However, the back series for these new base years have not yet been released, thus making it difficult to ascertain the credibility of the data and undertake meaningful comparisons with past years. There have been multiple complaints and many representations made by economic researchers on this count.
What makes MoSPI’s proposal even more contentious is the choice of 2017-18 as the new base year. For one, going by the traditional sequence of revisions, the new base year should be 2014-15. The shift to 2017-18 is especially hard to understand since the data related to it has not been finalised as yet. Moreover, 2017-18 was an abnormal fiscal year due to the lingering effects of demonetisation and disruption because of the new goods and services tax regime. Basing the new series on it is likely to throw up trends that may not reflect the reality. Instead of making more changes, MoSPI should prioritise restoring credibility and comparability to the existing data set by bringing out the back series.