Controversy over the credibility of the country’s Gross Domestic Product (GDP) series is escalating after a recent National Sample Survey Office (NSSO) study found that the companies’ data from the Ministry of Corporate Affairs (MCA) used for computing GDP included shell companies.
During its survey on the country’s service sector, NSSO found that about 39% companies which were deemed as ‘active companies’ (registered entities which reported financial results at least once in a period of three years) by MCA, and were essentially used in GDP calculation, could ‘not be traced’ or ‘closed’ or were ‘out of coverage’. Meaning, these companies could be shell companies or fake companies. In order words, some 13,721 companies in the MCA database are now under the suspicion of being shell companies, while the actual number could be much more bigger as NSSO surveyed only a sample of MCA data (35,456 companies). It is to be noted that these are companies which have reported annual revenue of Rs 20 crore and above.
Following the major revelation, on May 10, the Ministry of Statistical and Personnel Training claimed that it will look into the matter and take “remedial steps”. However, prominent analysts are divided on the impact of shell companies on calculating GDP.
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In a discussion on CNBC TV18 on May 10, Sudipto Mundle, distinguished fellow, National Council of Applied Economic Research (NCAER); Pronab Sen, former chief statistician; and R. Nagaraj, professor, Indira Gandhi Institute of Development Research expressed contradicting views on this matter.
Pronab Sen claimed that inclusion of such data in calculating GDP “make no difference to the headline GDP figures at all”, in contradiction with Nagaraj who argued that the “GDP numbers will be affected” as significant percentage of companies are suspicious. Sudipto Mundle felt that the truth could be “somewhere between Pronab Sen’s remark saying it makes no difference at all and Nagaraj’s comment that it would make a very substantial difference”.
Both Mundle and Nagaraj questioned why the Central Statistical Office (CSO) has not made public the details of methodology and other related documents when new GDP series was adopted, which was not the case during the previous governments. In the recent years, Nagaraj has also been questioning why the MCA was not making its data “freely available” for the public.
Nagaraj has also raised doubts whether a “blow up” technique (which could overestimate GDP figures) was used in the new methodology, considering the probability of using data of fake companies. “If I were to go with the written words of the CSO, they are clearly blowing up and they have not explained how they are doing it. In spite of last four years of questioning them, they have not revealed to us how they are getting the final estimates.” But, Sen says that the “blow up” factor was not supposed to be taken. “If blowing up is happening then the CSO should explain it. Under the procedures that are laid down, there is supposed to be no blowing up in the final estimates,” Sen said.
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The varying views of even prominent experts on the matter of new GDP has only left the public more confused.
In 2015, CSO adopted the new methodology of computing GDP series and began taking corporate information from the Ministry of Corporate Affairs’ Mission Mode Project (MCA-21) database. Another key change introduced was that the ‘base year’ was changed to that of financial year 2012, replacing the old series’ base year of financial year 2005.