The government is mulling over the ‘Chain-base’ methodology for calculating the gross domestic product (GDP) that will keep updating weights assigned to various products and activities in the economy.
In this new methodology of Chain base formula; there is no fixed base period. The year immediately preceding the one for which the price index has to be calculated is assumed as the base year. The base year in this new method of calculating GDP can change as the government decides so.
The former chief statistician Pronab Sen explains the concept that if the production of a particular item rose to 120 units in 2018-19 from 100 units a year ago, the weights of the item will remain the same if one calculates the GDP for 2019-20 under the current methodology with the base year of 2011-12. However, the weight of the item will increase as the production of other items in the chain base method but the base year will remain 2011-12.
He adds further, ‘the apprehension that the chain base index will come in the way of comparing the GDP of the past years is not valid. The problem remains only if one compares GDP data of 2019-20 for the year prior to 2012-13, but that has nothing to do with the chain base method but the problems in the back series data’.
However, the problem in India is that the volume data comes with a lag of two years, so the weights of the previous year cannot be used, added he.
This new GDP estimation method will capture the structural changes by allowing new activity and items to be added every year in the economy. Current GDP estimations are based on data for 2011-12.