Govt exploring new method for calculating GDP with changing weights

The weights assigned to various products and activities will keep updating but the base year will remain the same

The government is exploring a new methodology of calculating the gross domestic product (GDP) which will keep updating weights assigned to various products and activities in the economy.  

The new methodology, called the chain base method, however does not change the base year by itself, notwithstanding the impression given by its nomenclature. The base year changes when the government decides to change it, say in five years.  Also, products and services remain the same, unless the base year is changed. 

So, if the chain base index is applied to the current series for the year, say  2019-20, the base year will remain 2011-12. However, the weights  of product and activities will change, depending on their output in the previous years. 

Chief statistician Pravin Srivastava said," We are currently exploring the options for shifting to a chain based system but it requires more frequent data and the data flows will need to be aligned accordingly. This will require more resources and we are working on it."

Explaining the concept, former chief statistician Pronab Sen said if production of say a particular item rose to 120 units in 2018-19 from 100 units a year ago, the weights of the item will remain the same if one calculates the GDP for  2019-20 under the current methodology  with the base year of 2011-12.

However, if the chain base method is used, the weights of this item will increase depending on the movement of production of other items. But, the base year will remain 2011-12.

So, the apprehension that the chain base index will come in the way of comparing the GDP of the past years is not valid. The problem remains only if one compares GDP data of 2019-20 for the year prior to 2012-13, but that has nothing to do with the chain base method but the problems in the back series data. 

However, the problem in India is that the volume data comes with a lag of two years, so the weights of the previous year cannot be used, said Sen. 

As such, the weights of 2017-18 will have to be used for 2019-20, but that is not problematic if  the period of changing the weights is not arbitrarily revised. So if the weights of 2017-18 is used for calculating GDP for 2019-20 and the weights of 2016-17 is used for calculating GDP for 2018-19, there would not be any issue, Sen explained.