GDP Base Year Revision

Posted 22 Jan 2025

Updated 24 Jan 2025

3 min read

Why in the News?

Government has formed 26-member Advisory Committee on National Accounts Statistics (NAS) to update the GDP base year from existing 2011-12 to 2022-23.

What is Base Year?

A base year is the reference year whose prices are used to calculate the real growth (minus inflation) in national income.
Thus, Base year is a benchmark used for GDP calculation.
- For example: If 2011-12 is the base year, GDP for other years is adjusted to match 2011-12 prices.
Revision of base year are also relevant for other metrics such as the Index of Industrial Production (IIPs), the Wholesale Price Index (WPI) and the Consumer Price Index (CPI).

An image showing need to update the GDP Base Year. Key reasons include- Removing Inflation Effects: Outdated base years can overestimate GDP by ignoring rising prices. Enhances Data Quality: Includes new data from digitization, enhances more reliable data use, etc. Global Comparison: Aids in comparing GDP with other countries. Other Reasons: Adapts to post-pandemic dynamics, supports policymaking, etc.

About GDP

Measurements of GDP: Theoretically, GDP can be measured in three different way, each of which should give the same answer (refer to the infographic)
- Nominal GDP: Measured at current market prices, ignores inflation.
- Real GDP: Adjusted for inflation using base year prices, showing true economic growth.
Limitations of GDP
- Excludes non-market activities (e.g., household work)
- Ignores income inequality
- Overlooks environmental damage
- Misses informal economy contributions
- Doesn't measure welfare or living standards

Image showing methods of calculating GDP

Other relevant information on GDP

Chain-based GDP calculation

Involve measuring GDP by linking short-term changes in economic activity using a rolling base year.
Updates the base year periodically (often annually), allowing for a continuous series of growth rates.
Common in advanced countries like the US, Australia, Canada, and EU nations.
However, it is not considered suitable for India as it
- May not work well due to volatile agriculture and fuel prices.
- Resource-intensive and complex, challenging for a resource-limited country.
- Reduces ease of long-term data comparisons.

GDP Accounting Standard

For the purpose of global standardization and comparability, countries follow the System of National Accounts evolved in UN after elaborate consultation.
System of National Accounts (SNA) 2008 is latest version of international statistical standard for national accounts, adopted by United Nations Statistical Commission in 2009 and is an update of earlier 1993 SNA.