Why in News?

• As part of the ongoing revision of India’s GDP data series, the Ministry of Statistics and Programme Implementation (MoSPI) has proposed eliminating the contentious ‘discrepancies’ component from GDP estimates.
• This reform is outlined in MoSPI’s discussion paper on methodological improvements and coincides with the new GDP base year of 2022–23, scheduled for launch on 27 February 2026.
• The GDP back series under the revised base year is expected by February 2027.

‘Discrepancies’ in GDP:

• GDP compilation methods: Production (value-added/income) approach; expenditure approach.
• Reason for discrepancies:
  • Due to differences in data sources, coverage, valuation methods, and time lags, GDP estimates from these two approaches often do not match.
  • This difference is recorded as ‘discrepancies’ under the expenditure-side GDP, which is considered relatively less accurate.
• Interpretation:
  • Positive discrepancy: Production-side GDP is higher than Expenditure-side GDP
  • Negative discrepancy: Expenditure-side GDP is higher than Production-side GDP

Why are Discrepancies Problematic?

• They obscure the true drivers of GDP growth, complicating macroeconomic analysis. Large discrepancies can lead to significant future revisions in GDP growth rates.
• Example (July–September quarter):
  • Real GDP growth: 8.2%
  • Discrepancies: ₹1.63 lakh crore (3.3% of GDP) in real terms
  • In nominal terms: (–)₹2.46 lakh crore ([–]2.9% of GDP)
• The post-pandemic period has seen volatile swings, e.g., (–)3% of GDP (Jan–Mar 2023), +3.3% of GDP (Apr–Jun 2023).

Proposed Reform - Removing Discrepancies:

• MoSPI plans to integrate Supply and Use Tables (SUTs) with annual national accounts. Use SUTs to ensure that total supply is equal to total use for every good and service.
• It aims to limit discrepancies in early GDP estimates, eliminate them entirely in final estimates once full data becomes available.
• SUTs:
  • Map domestic production and imports against intermediate consumption, final consumption, capital formation, and exports.
  • Follow System of National Accounts (SNA) accounting constraints.

Expert Opinion:

• Economists view the move positively:
  • Eliminating discrepancies will improve transparency and interpretability of GDP data.
  • Persistent or rising discrepancies in past revisions have undermined confidence in growth estimates.
• However, concerns remain about data quality, especially reliance on outdated survey data (over a decade old).

Challenges and Way Forward:

• Inherent complexity: Of GDP estimation in a large, informal, and diverse economy. Improve institutional capacity for national accounts compilation.
• Outdated surveys and data gaps: Particularly in services and informal sectors. Regularly update surveys and base-year datasets.
• Time lags and uneven quality of administrative data: Strengthen administrative data systems and real-time data collection.
• Transparency concerns:
  • Risk that eliminating discrepancies may involve judgement-based adjustments, raising transparency concerns.
  • Ensure methodological transparency while adjusting data to remove discrepancies. Align closely with international best practices under SNA.

Conclusion:

• The proposed removal of ‘discrepancies’ from India’s GDP estimates marks a significant methodological reform aimed at enhancing statistical credibility, consistency, and policy relevance.
• While integration of Supply and Use Tables can improve accuracy, the success of this reform ultimately depends on robust, updated data sources and transparent statistical practices.
• For policymakers, investors, and analysts, a cleaner GDP framework will enable better interpretation of India’s growth dynamics.