A study conducted by the National Sample Survey Office (NSSO) between June 2016 and 2017 found major gaps in an important database used to calculate India’s GDP. The NSSO said that a part of the revenue included in the GDP figure comes from companies no longer active, leading to an inflated GDP.
Mint reported that NSSO’s study found that 38% of the companies included in the Ministry of Corporate Affairs (MCA)-21 database of companies included in India’s GDP were either inactive or wrongly added.
The MCA had listed those companies as “active” based on whether or not they had filed tax returns at least once in the last three years, explains Mint.
The Economic Times says 15% of the companies had untraceable addresses and 21% were “out of coverage”, meaning they were inactive despite being included in official data.
If these inactive companies are removed, India’s growth levels and GDP will likely decline.
The Economic Times also says that two other reports by the NSSO on this faulty data had to be scrapped because their findings presented a very dismal picture of the Indian economy.
What is the NSSO?
The NSSO is a government body that conducts large-scale surveys on socio-economic factors and various industries and agriculture. It has four divisions: Survey Design and Research, Field Operations, Data Processing, and Co-ordination and Publication.
The NSSO stepped into the national spotlight prior to pointing out issues with the MCA-21 data set.
In January, two members of the National Statistical Commission (NSC) resigned after the government refused to release an NSSO survey on employment data post-demonetisation.
“The report was approved and should have been released immediately but was not. I thought I should not just watch silently what was happening,” said P C Mohanan, one of the employees who resigned.
The NSC was established as an independent body tasked with evaluating the policies and reports compiled by the NSSO.
The two former employees also voiced concerns about the government not consulting experts before making changes to the data that is used in GDP calculation, including the MCA-21 database.
What does NSSO’s discovery mean?
One of the most glaring issues that NSSO’s study reveals is the Central Statistics Office’s (CSO) lack of reliability. The CSO is the data and statistical organisation that uses those databases and calculates India’s GDP.
That the CSO’s reliability and accuracy is questioned is a setback for any future data it releases, especially because it has a good reputation in the eyes of the international community.
Indira Gandhi Institute of Development Research Professor R. Nagaraj told Mint that he and his colleagues asked the CSO to verify the databases before using them.
This MCA-21 database was first included in the GDP calculation process in 2015, despite economists questioning its accuracy on the basis of the data being unverified.
“Some of us had repeatedly asked CSO officials to verify the MCA-21 numbers before using them in national accounts, but they finalised the new series without adequate scrutiny and debate,” said Nagaraj.
Mint also reports that although the CSO defends the accuracy of the MCA-21, it refuses to make the data set accessible to the public.
NSSO’s findings also explain that if those inactive companies are removed from calculations, India’s GDP could likely decline enough for the international community to question the country’s economic prowess.
One of the ways to remedy this situation is to make the MCA-21 data set public and allow experts to fact-check it, because if the Indian economy cannot project robustness and stability, countries and investors might become less enthusiastic about commercial and political partnerships with India.
Rhea Arora is a Staff Writer at Qrius.