How does the Central Statistics Office calculate GDP?

Here is a look at how CSO sources its data and calculates the economic growth rate
Thu, Jun 02 2016. 04 00 AM IST
New Delhi: The Central Statistics Office (CSO) released the provisional estimates of gross domestic product
(GDP) data for 2015-16 on Tuesday which showed the economy grew at 7.6% to become a $2 trillion economy,
powered by a 7.9% growth in the March quarter. Here is a look at how CSO sources its data and calculates the
economic growth rate.
There are eight sub-heads under which GDP data is presented.
Agriculture (2015-16 growth rate: 1.2%)The data actually includes agriculture, forestry and fishing. While
the crop production data is sourced from the advance estimates released by the ministry of agriculture from time
to time, fishing data is taken from the stated directorates of fisheries. Forestry data comprises of industrial wood,
fuel wood and minor forest products such as bamboo, fodder, honey and tendu leaves. Crops including fruits and
vegetables account for 61% of the agriculture sector, while livestock products contribute another 39%.
Mining and quarrying (2015-16 growth rate: 7.4%)The economic activities covered in this sector comprise
extraction of minerals which occur in nature as solids, liquids or gases; underground and surface mines, quarries
and oil wells. This data is now mostly sourced from the financial statements of the companies in the stock market
and the ministry of corporate affairs. In the earlier series, this data used to be collected from the Indian Bureau of
Mines.
Manufacturing (2015-16 growth rate: 9.3%)Manufacturing activities are classified into organized and
unorganized for the purpose of estimation. The private corporate sector growth which has a share of around 69%
in the manufacturing sector is estimated from available data of listed companies with the BSE and NSE. The
quasi corporate and unorganized segment having a share of around 25% in the manufacturing sector is estimated
using the manufacturing data from the index of industrial production (IIP). The rest 6% is presumably
contributed by public sector enterprises.
Electricity, gas, water supply and other utility services (2015-16 growth rate: 6.6%)The electricity
data is sourced from the IIP released by the CSO every month, while data for gas, water supply and other utility
services, including waste management services, is mostly sourced from the corporate sector.
Construction (2015-16 growth rate: 3.9%)Construction data is not collected directly but from key indicators
of the construction sector, such as production of cement and consumption of finished steel. However, under the
new series, data from the ministry of corporate affairs website for private sector companies also supplements
this.

Trade, hotels, transport, communication and services related to broadcasting (2015-16 growth
rate: 9%)The consumption level in the economy is reflected by this segment of GDP. The key indicator used for
estimating the trade sector is sales tax growth. Growth in the hotels and restaurant sector is estimated from
available data from listed private companies. Data from road, railways, airlines and shipping sectors are used for
calculating the transport sector. Communication and services related to broadcasting includes data from the
postal department, telecommunication companies and recording, publishing and broadcasting companies.
Financial, insurance, real estate and professional services (2015-16 growth rate: 10.3%)A major
component of this industry is real estate and professional services, which have a share of 71%. The key source of
data for this sector is the quarterly growth of the corporate sector for computer-related activities which is
estimated from available data from listed companies. For the banking sector, aggregate bank deposits and bank
credits are sourced from the Reserve Bank of India (RBI). For the insurance sector, data from the MCA website,
Employees Provident Fund Organisation (EPFO) and Employees State Insurance, among others, is used.
Public administration and defence and other services (2015-16 growth rate: 6.6%)This is a proxy for
government expenditure, at the levels of the Centre, state and local bodies and most of the data is sourced from
budget documents and regular data released by the Controller General of Accounts.
Discrepancies GDP is measured through output approach and expenditure approach. The above sub-heads
when added up amount to GDP calculation through the output method.
Under the expenditure approach of measuring GDP, the various components include private consumption
expenditure, government consumption expenditure, investment, change in stocks, valuables and net exports.
Though GDP measured from either side should be equal, since reliable data is not available for private
consumption expenditure, there is always a difference in the two ways of measuring GDP. The difference is
usually put as discrepancies in the expenditure approach of measuring GDP.

Whats different about the new GDP

The method of calculating the new growth numbers differs from the old in four ways. Here is how
There have been heated debates over Indias recent growth estimates put out by the Central Statistics Office
(CSO) and rightly so. A couple of months back, concerns about the prolonged slowdown that gripped our
economy were rampant. But that was before the CSO released new gross domestic product (GDP) data in
January. The revised growth number for GDP reveals that the Indian economy has been surging over the last two
years. 2013-14 was, in fact, a year of sharp recovery in the Indian economy. The current fiscal has been even
better, with the GDP pegged to grow by a solid 7.4 per cent.
The revision has bumped up Indias growth numbers sharply and put them at odds with other leading indicators
of industrial activity, such as the Index of Industrial Production (IIP), which still shows weakness.
Economists are baffled at how such a sharp growth could go unnoticed when, at the ground level, companies are
still grappling with weak demand, high debt and low earnings.
So, should all the gobbledygook about new and old growth numbers matter to you? Well, yes, because the state of
the economy is usually indicative of how much you earn. A higher GDP is usually a good sign, implying better
living standards. For the investor, the implications are more direct a higher growth in the economy will mean
better corporate earnings.
Here are three things that help you understand the changes in the new GDP.
Larger universe
If you jog your memory on statistics, youll remember that the larger the sample, the more accurate is the study.
This is one of the reasons why the CSO decided to change the database for calculating GDP. The new GDP
incorporates more comprehensive data on corporate activity than the old one. Earlier, data from the Annual
Survey of Industries (ASI), which comprises over two lakh factories, was used to gauge activity in the
manufacturing sector.
Now, annual accounts of companies filed with the Ministry of Corporate Affairs MCA21 has been used. This
is said to include around five lakh companies, bringing in more companies from the unlisted and informal
sectors.
Two, until now, the manufacturing data was compiled factory-wise. Now, activity at the enterprise-level is taken.
This means selling and marketing expenses are also reckoned, instead of just production costs.

The change: The manufacturing sector, in particular, has shown a far better performance. The change in
measuring the value addition in the manufacturing sector is one of the main reasons for the bump-up in growth
numbers.Earlier, it was computed using the data from IIP and the ASI. The first estimates put out in any year
were based on IIP (based on output volume) and these were revised after two years, when the ASI data was
available to capture value addition.
This could be one reason why the new data, which already captures the value addition in the first year by using
the MCA21 database, varies from the old one. The CSO has highlighted that any improvement in corporate
performance, which was aided by higher inflation and low input cost, is now reflected in the new series.
At odds: While the new GDP shows 5.3 per cent growth in manufacturing in 2013-14, the actual performance of
NSE-listed companies in the manufacturing space shows that earnings have been declining in the last two years
(by 4 per cent in 2013-14). Whether the numerous unlisted companies, particularly in the informal sector, have
displayed such a sharp improvement in productivity is open for debate. If we look at the listed universe, the
companies in the small and mid-cap space have seen their earnings shrink further in the nine months of 2014-15.
Beyond factor cost
The explanatory notes on the new GDP may throw you off track for a moment by using a new term value added
to explain the difference between the old and the new method. But stick to the basics taught at school it is
always the value added in production that is used to compute GDP.
So, wheres the difference? Under the old method, GDP was calculated at factor cost; now it will be done at basic
prices. To understand the difference, let us look at it from the producers point of view. For a producer, GDP at
factor cost represents what he gets from the industrial activity. This can be broken down into various components
wages, profits, rents and capital also commonly known factors of production. Aside from these costs,
producers may also incur other expenses such as property tax, stamp duties and registration fees, among others.
Similarly, producers may also receive subsidies (production related) such as input subsidies to farmers and to
small industries (not food or petrol subsidies that you get on the final product). It is important to note that only
taxes and subsidies on intermediate inputs are adjusted.
For arriving at the new gross value added (GVA) at basic prices, production taxes, such as property tax, are added
and subsidies are subtracted from GDP at factor cost. Put simply, GVA at basic price represents what accrues to
the producer, before the product is sold.
The change: The presence of certain factors which are independent of the level of production, such as
production taxes, is one of the reasons for the wide disparity in sector-wise growth under the two methods. For
instance, despite an output contraction in manufacturing in 2012-13, the GVA at basic price increased by 6.2 per
cent.
At odds: The CSO attributes the wide disparity to improvement in productivity. But this is not reflected in
companies performance. The 6.8 per cent growth projected for manufacturing in 2014-15 is in stark contrast to
the 5 per cent decline in earnings in the nine months of 2014-15 for the NSE-listed manufacturing companies.
What the customer pays
While the growth in the economy under the old series was gauged by the growth in GDP at factor cost, under the
new series, the headline growth, which is pegged at 7.4 per cent for 2014-15, is based on GDP at constant market
prices involving more adjustments to the above calculated GVA at basic prices. The first level of adjustment is
to convert to market prices.
The price paid by the consumer is not the same as the revenue received by the producer. This is because of the
taxes that are paid to the government in the form of indirect taxes. Similarly, the consumer may receive subsidies
on food or petrol.
GDP at market prices makes adjustment for any such subsidy or indirect tax to arrive at GDP at market price,
indirect taxes are added while subsidies are subtracted from GVA at basic price.
The change: The GDP at the aggregate and sector level has significantly changed. The average share of the
industrial sector has moved up by 5.6 percentage points from 26.1 per cent in the old series to 31.7 per cent under
the new series, for 2011-12 to 2013-14.
(This article was published on March 8, 2015)