I am looking at GDP in current prices for Indian states and there are multiple base years. This is confusing because GDP in current prices is supposed to be reported in the value of the currency for that particular year. So why are there multiple base years?

Here is an illustration of how the data are presented (this is coming from the Reserve Bank of India, source is Central Stats Office)

            Base Year: 2004-05          

Year: 2011-12, 2012-13, 2013-14, 2014-15

GDP: 36224493, 41006812, 46418355, 52002992

            Base Year: 2011-12          

Year: 2011-12, 2012-13, 2013-14, 2014-15

GDP: 37940203, 41140371, 46427154, 52646842

This is for norminal GDP. Again why is there base years when we are looking at nominal GDP (data for each year should use value of the currency for that particular year) Really appreciate any clarification.

  • $\begingroup$ Can you please post the link to the source? $\endgroup$ – london Oct 11 '17 at 15:05
  • $\begingroup$ I updated the answer. $\endgroup$ – luchonacho Oct 17 '17 at 13:40

Updating of the base year is an indication of methodological changes in the way the national accounts are measured. This means two series with different base year (or reference year, as others call it) are strictly speaking not comparable over time.

Here is the official document from the Central Statistics Office informing about the changes. As the document states:

1.3 The reason for changing the base year of the nation al accounts periodically is to take into account the structural changes which have been taking place in the economy and to depict a true picture of the economy through macro aggregates like Gross Domestic Product (GDP), National Income, consumption expenditure of Government and individuals, capital formation etc.

Also, as this article from the Reserve Bank of India states:

II.1.1 In January 2015, the Central Statistics Office (CSO) released a new series on India’s national accounts. The distinguishing features of the new series are: (i) updating the base year from 2004-05 to 2011-12; (ii) improved coverage of corporate activity by (a) using the MCA 21 database1 of the Ministry of Corporate Affairs, (b) employing value-based indicators such as sales tax collections in conjunction with volume-based indicators such as industrial production, and (c) use of results from the latest surveys, including on activity in the unorganised sector; and (iii) methodological changes such as shifting from the ‘establishment’ to the ‘enterprise’ approach for estimating value added in mining and manufacturing.

If the base year is not updated when methodological changes are carried out, you would not be able to tell that the series before and after the update are not the same. Hence, changing the base year is a trivial way to tell the public they are different.

That is also the reason why the two series, even if in nominal prices, are different over the years.

A comprehensive and critical analysis of these methodological changes for India can be found in this recent paper.

  • $\begingroup$ correct me if I am wrong: by base year, are you meaning the year from which onwards the new methodology is applied? (which is different from base year as understood when discussing real gdp) $\endgroup$ – Summer Oct 11 '17 at 15:47
  • $\begingroup$ @Summer yes. The calculation of a real GDP for given base year is a much simpler exercise and the year for which real=nominal can be easily changes. $\endgroup$ – luchonacho Oct 11 '17 at 15:52
  • $\begingroup$ thanks for the clarification (to be more precise and to make sure I understand this correctly: by base year we are then meaning the reference year used to dertermine the shape of the economy for measuring GDP.) $\endgroup$ – Summer Oct 11 '17 at 16:23
  • $\begingroup$ @Summer What do you mean by "the shape"? $\endgroup$ – luchonacho Oct 12 '17 at 6:18

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