Why was the 2011–12 GDP base year revision controversial?

Why was the 2011–12 GDP base year revision controversial?

Answer:

India periodically revises the base year of national accounts to ensure that GDP reflects current production and consumption patterns. In 2015, the base year was shifted from 2004–05 to 2011–12.

• Methodological changes introduced:

  • Adoption of System of National Accounts (SNA 2008).

  • Shift from factor cost to gross value added (GVA) at basic prices.

  • Use of MCA-21 corporate database (Ministry of Corporate Affairs) for company data instead of limited ASI samples.

  • Wider coverage of financial sector, local bodies, and NGOs.

• Reasons for controversy:

  • Sharp revision of growth rates: Earlier estimates showed ~4.7% growth in 2013–14, but after revision it became ~6.9%. Critics felt this was inconsistent with ground indicators (tax revenue, credit growth, exports).

  • Transparency issues: The MCA-21 corporate database was not fully accessible to researchers, raising concerns about credibility.

  • Disconnect with sectoral indicators: Corporate sector showed robust growth in revised GDP, but investment, credit, and exports were weak.

  • International perception: Institutions like IMF and World Bank initially struggled to reconcile India’s “high growth story” with other macroeconomic signals.

Cross-question:

What are the benefits and risks of frequent base year revisions?

• Benefits:

  1. Ensures GDP reflects current economic structure (e.g., rise of IT, telecom, services).

  2. Incorporates new data sources (GST, MCA-21, satellite data).

  3. Improves international comparability by aligning with SNA 2008.

  4. Provides better inputs for policy formulation (inflation targeting, fiscal planning).

• Risks/Challenges:

  1. Confusion for policymakers and markets if revisions are too frequent or large.

  2. Credibility issues if methodology is not transparent or datasets are inaccessible.

  3. Comparability problem with past data → trend analysis becomes difficult.

  4. Political misuse – changes in growth numbers may be perceived as manipulation, undermining trust.

👉 Thus, while base year revisions are essential for statistical accuracy, they must be accompanied by methodological transparency, wider consultation, and user access to data to maintain credibility of India’s national accounts.