26 Sep 2022 Chain based method for calculating GDP estimates.
Source: The Economic Times
About:
- Instead of a fixed base revised every five years, national account statistics or GDP estimates are compared with those of the previous period in the chain base index.
- Chaining means fixed frequency.
What are the issues associated with fixed base indexes?
- Structure change in the economy does not lead to change in weight assigned to various economic activities.
- Fixed base index method does not factor in relative changes in prices and impact on demand.
- Present GDP statistics do not fully capture India’s gig economy.
Advantages of chain base method:
- GDP estimates to become more current and relevant: As, it will capture structural changes in the economy faster by allowing new activity and items to be added every year.
- Simplifies inter -country growth comparisons: As it is in line with global practice to estimate growth.
- Chain based index will help fully capture India’s gig economy and also services as 60% of India’s GDP comes from services.
Issues associated with chain based methods:
- Method will impose a burden on the data collection machinery as well as the respondents as it would require much better data collection with quick addition of new businesses, goods and establishments.
- May lead to compromise on details due to more frequency.
- Lack of enough data from previous years.
- Discrepancy in growth data: As its difference from real growth would depend on weights assigned to elements.
Article: India may switch to chain base mechanism for GDP estimates.
Article Link: .https://economictimes.indiatimes.com/news/economy/policy/india-may-switch-to-chain-base-mechanism-for-gdp-estimates/articleshow/72480916.cms?from=mdr
Yojna IAS Daily current affairs eng med 26th Sep
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