GDP calculation underestimates growth: Crisil

The study has identified three other key issues: First,the current methodology does not accurately measure the contribution of the unorganised sector. Second,estimation of service sector GDP is constrained by the absence of appropriate price indices to convert nominal GDP into real GDP. Third,the estimates do not account for improvement in the quality of goods.

The Crisil observation has come days after the Reserve Bank of India questioned the reliability and frequent revisions of some of the basic data that the RBI needs to use in policy calculations.

The RBIs policy formulation is handicapped by frequent revisions to data. We make policies in real time and if the provisional data that these are based on are inaccurate,the resultant policies can turn out to be sub-optimal choices, RBI Governor D Subbarao had said recently.

In a long awaited move in June 2011,the CSO decided to change the base-year for computation of the Index of Industrial Production IIP. This revision in IIP calculation,a key component of GDP estimation,is expected to up the GDP estimates for 2010-11 from 8.5 per cent to 8.9 per cent.

According to Roopa Kudva,Managing Director and CEO,Crisil,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; hence the need for accurate estimation. 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 Indias GDP.