How the New Series of National Accounts (2011-12) differs from the Old Series

I couldn’t help but get caught up in Star Wars hysteria the last few weeks. (For those of you living under a rock, “Star Wars: The Force Awakens” opened on Dec 25th). Star War references were everywhere – on TV, online, and even at home.

Since you’ve probably endured far too many Star War jokes already................I’m gonna present you with some more. 

Q. Who tries too hard to be a Jedi? 

A. Obi-Wannabe 

Q. What do you call Harrison Ford when he smokes up? 

A. Han So-high

Q. What do you call the website that Chewbacca started that reveals Empire secrets? 

A. Wookieleaks

OK then. Back to business. Let's move on to how the new series of National Accounts, released by the CSO (Central Statistical Office) in Jan 2015, differs from the previous series.

What is a National Accounts Series? 

A National Accounts series refers to estimates of macro-economic aggregates (such as GDP, Gross National Income, Savings etc.) made by the CSO for current and previous years based on a common methodology and pre-determined sources of data. When a new series is released, not only does the base year change (this is the year whose prices are used to make estimates for other years at constant prices), revisions in the methodology of compilation of estimates, adoption of latest classification systems and inclusion of new data sources is also done. As a result, not only do estimates at constant prices change (have to because of new base year) in the new series, estimates at current prices change as well given the changes in methodology and sources of data. 

New National Accounts series (2011-12 base year) vs. prior series (2004-05 base year) 

The new Indian National Accounts series released in early 2015 uses 2011-12 as it base year instead of 2004-05, which was the base year for the previous series. Besides this obvious change, there are other significant changes that one must be aware of:

• GDP at Factor Cost (the key GDP measure used by the CSO so far) will no longer be discussed in government press releases. 

I’ve covered in detail the concepts of Factor cost, Basic price and Purchaser’s price in my previous post “Say VAT? ....And Other Concepts”. Up until now (before the 2011-12 series was introduced), GDP at Factor cost was the key GDP measure used by the CSO. Infact, whenever the term “GDP” or “GDP growth” was used by official government sources, it referred to GDP at Factor cost (usually at constant prices). 

With the release of the new series however, in-line with SNA 2008 recommendations, GDP at Factor cost1 has been relegated to the background and will no longer be discussed in press releases. 

The reason the SNA takes this approach is because there this no observable set of prices, such that GVA2 at Factor cost can be obtained directly by multiplying this set of prices by quantities of output. By definition, taxes or subsidies on production cannot be eliminated from output prices the way product taxes and subsidies can. Thus, the SNA considers GVA at Factor cost not strictly a measure of value added, but rather a measure of income. 

1 GDP at Factor cost referred to as GVA at Factor cost in SNA 2008. 
2 GVA = Gross Value Added 

• “GDP” will now mean GDP at Market prices. 

From now on, “GDP” will mean GDP at Market prices (unless otherwise stated). This is in-line with SNA practice, even though technically the SNA recommends using the term GDP at Purchaser’s price instead of GDP at Market prices. 

Refer to my previous post “Say VAT? ....And Other Concepts” to understand meaning of GDP at Purchaser’s prices.

• Industry-wise estimates will be presented as GVA at Basic prices (instead of at Factor cost). 

Industry-wise estimates will now be presented as GVA at Basic prices, instead of at Factor cost (SNA recommendation again). If GVA at Factor cost is needed, it can be derived from GVA at Basic prices by subtracting taxes on production and adding subsidies on production. 

The reason GVA at Basic prices is preferred is because unlike the situation with factor cost, basic prices can be observed directly and recorded.

• Classification of indirect taxes and subsides into: production taxes and subsidies, and product taxes and subsidies. 

This has been done for the first time. Without this, the calculation of GVA at Basic prices would not have been possible. See my previous post “Say VAT? ....And Other Concepts” for discussion on product vs. production taxes/subsidies.

• Changes in sources and methodology for calculating value added in the manufacturing and services sectors. 

1. Comprehensive coverage of the Corporate Sector (enterprises registered under the Companies Act, 1956) both in manufacturing and services with the incorporation of the annual accounts of companies filed with the Ministry of Corporate Affairs (MCA) under MCA21, their e-governance initiative. 

What is MCA21? 

(I’ve simplified and pasted below sections from the document “MCA21: Improvements in Private Corporate Sector data”– written by Dr. Sunita Chitkara, MCA) 

Under the provisions of the Companies Act, 1956, registered companies are required to file certain documents (Annual reports, Balance sheets etc.) with the offices of various Registrars of Companies (RoCs) (part of the MCA). Thus, the responsibility for collection, compilation and dissemination of basic statistics on the Indian Corporate Sector lies with the MCA. 

MCA21 is an e-governance programme initiated by MCA, aiming to provide easy and secure access to MCA services in anywhere – anytime mode. Prior to the implementation of the MCA21, all transactions, including statutory filings by companies, were conducted in the manual mode using physical paper form. With the launch of MCA21 in late 2006, these forms have been re-engineered and converted into electronic forms (e-forms). Rather than compelling the business community to physically travel to MCA offices, MCA services are now available to them via the Internet at the place of their choice (homes/office). Thus, MCA21 has really helped the business community in meeting their statutory obligations. 

In the previous National Accounts series (2004-05 base year), ASI (Annual Survey of Industries) data was used to gather information on the “organized” manufacturing sector. In the new series, the MCA21 database has been used to supplement the data available from the ASI. 

Similarly the “corporate” services sector has also been covered more comprehensively in the new series given the incorporation of data on service companies from the MCA21 database.

2. Incorporation of the results of recent NSS Surveys –i) Unincorporated Enterprise Survey (2010-11), and ii) Employment-Unemployment Survey (2011-12), along with the adoption of “Effective Labour Input Method” for unincorporated manufacturing and services enterprises. 

The National Sample Survey Office (NSSO) which falls under the Ministry of Statistics and Programme Implementation (MOSPI), conducts surveys on unorganized/ unincorporated enterprises in various sectors of the economy, in order to enable the estimation of (amongst many other parameters) value added in these sectors. 

In 2010-11, the NSSO conducted a survey on all unincorporated (not registered under the Companies Act, 1956) non-agricultural enterprises in the country (excluding those in construction). The total number of such enterprises in the country was estimated at 5.77 crore. The survey estimated (using sampling techniques) various parameters included Gross Value Added (GVA) per worker for manufacturing, trade and other sectors. These recent estimates have been incorporated in the new NAS series, replacing estimates made in dated surveys. 

What is “Effective Labour Input Method”? 

In order to estimate the GVA originating in the unorganized portion of a sector, lets assume the manufacturing sector, the CSO estimates the GVA per worker (from NSS surveys) in the unorganized segment of the manufacturing sector for a benchmark year (generally the year in which the NSS survey is conducted), and then multiplies it with the estimated number of workers in the unorganized manufacturing sector. This is called the “Labour Input Method”. 

With the new series, the CSO has refined this methodology and started using the “Effective Labour Input Method” for estimating GVA in the unincorporated manufacturing & service sectors. This method gives different weights to different categories of workers unlike the previous method, which assumed equal value addition per worker.

• Better coverage of government activities due to improved coverage of local bodies in both rural and urban areas. 

While there are other more specific changes in the new National Accounts series, I have covered the most significant ones. 

Also, the blog police just called..... I have exceeded the word limit. I'm also being fined for "Bad Star War jokes" - I've been assured that really is a bonafide fine category.

Ciao.