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Extent of overestimation of GDP in all likelihood marginal,says finance ministry amid NSSO report controversy - The Economic Times

NEW DELHI: The government has said enterprises excluded from the services sector survey are involved in some form of economic activity, making them eligible for inclusion in estimation of the gross domestic product (GDP). It said that the blowing up of the numbers, small over or under estimation, to account for missing enterprises, affects the level of GDP and not the year-to-year economic growth rates.

There is a raging debate over the veracity of GDP estimates since a report on services sector enterprises by the National Sample Survey Office (NSSO) said 38.7% of companies in the MCA-21 database used in the study were either missing or wrongly classified.

The MCA-21 database is used for estimating the GDP in the new series with 2011-12 as base. It faced criticism ever since it was released in 2015 because of a wide divergence in growth from earlier estimates.

According to the NSSO report , 35,456 entities were categorised as out-of-survey enterprises. The government said ‘out of survey’ does not mean that these enterprises do not exist in the economy, as was interpreted by some.

“On the basis of this interpretation, the suggestion has emerged that by not removing out-of-survey enterprises from the MCA database, the Central Statistics Office (CSO) over-estimates the GDP,” a finance ministry statement said on Friday, offering reasons why this was erroneous. Of the 38.7% out-of-survey enterprises in the NSSO report, out-of-coverage enterprises make up for 21.4%.

“The out-ofcoverage enterprises are simply those enterprises that are not engaged in activities intended for inclusion in the services sector survey,” it said. These enterprises are engaged in, for instance, manufacturing sector, said the statement.

“As a result, they cannot be classified as out-of-coverage enterprises for the purpose of estimating the GDP.”

It added that out-of-coverage enterprises are very much a part of the overall GDP. The ministry said that of the remaining 17.3% out-of-survey enterprises, 0.9% are establishments that are not considered in the MCA database for GDP estimation. The rest 16.4% are either closed or nontraceable enterprises, but with continuous evolution of the MCA database, the proportion of such entities has been coming down.

“Thus, the extent of overestimation of GDP in all likelihood is marginal,” the finance ministry said.

NO IMPACT ON GROWTH

The finance ministry pointed out that from 2012-13 to 2016-17, the number of enterprises whose annual returns were not available for GDP estimation accounted for only 12-15% of paid-up capital of all the enterprises in the MCA database. To account for this, it said the gross value-add estimated for the responsive enterprises was increased by a blow-up factor of 1.13-1.17 to estimate the Gross Value Added (GVA) of the entire private corporate sector.

Most of the non-responsive enterprises did not provide data because they exercised their discretion of filing returns in subsequent years while continuing to engage in activities reflected in their previously filed returns, it said.

“Accordingly, their inclusion in the overall GVA estimation was legitimate,” the statement said, justifying inclusion of these in the estimates through the blow-up. Because the blow-up is a feature of estimates for every year, based on the reporting percentage, it can overestimate absolute GDP by not growth so much.

“This feature ensures that although GVA levels could be slightly more or less than what they actually are, the growth rate of GVA from year to year will not be affected,” it said. The MCA database on the private corporate sector is a valuable addition to the data sources available for estimation of GDP and its use provides a more correct measure of economic activity in the country, the statement said.

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