Explained: The BASE OF GROWTH

A base year is a reference year with respect to which GDP numbers for the following as well as preceding years are computed. Because the patterns of consumption and the commodity composition of the economy change, any comparison among numbers needs to be pegged to a reference year.

Why does it have to be revised?

Precisely because the indicators are fluid. Also, changes in ways of data compilation, new classification systems, and new sources of data need to be factored in. Incorporating new data sets results in corrections in levels of GDP, which affect a wide range of indicators such as trends in public expenditure, taxes and public sector debt.

How often is the base year revised?

Economic structures undergo significant changes every 5-10 years. Some research houses say the base year should be changed every five years to update/estimate national accounts in line with the latest available data. All countries revise base years of national accounts in accordance with recommendations of the SNA (System of National Accounts), an internationally agreed upon set of standards.

How does the change in base year impact growth numbers? 

Annual growth rates are not impacted significantly. This is because the increase in the size of the economy takes place for all following and preceding years. The change from 5 per cent to 6.9 per cent appears large, but these two numbers are with reference to different base years, and are pegged to different sets of data.

How many times have base years been revised in India?

The first national income estimates published in 1956 took FY ’49 as the base year. Since then there have been seven changes, including the latest one, in which the base year of national accounts was changed from FY ’05 to FY ’12. Advance estimates of national income for FY’15 with the new base year are likely to be released in this week.

What major changes have been incorporated in the current series?

The corporate sector — both manufacturing and services — will be covered comprehensively by incorporating the annual accounts of companies filed with the Ministry of Corporate Affairs. Partnership firms covered under Limited Liability Partnership Act have been covered too. Activities of rural and urban local bodies have been covered better. The series will also incorporate results of recent NSS surveys, and adopt an “Effective Labour Input Method” for un-incorporated manufacturing and services enterprises.