Recognising the need for providing estimates of national income on a regular basis, Government of India set up a High Powered Expert Committee in 1949 known as ‘National Income Committee’ under the Chairmanship of Prof. P.C. Mahalanobis. Following the methodology recommended by the National Income Committee, the Central Statistical Organisation (CSO) prepared the first official estimates of national income with base year 1948-49 at constant prices.

With the gradual improvement in the availability of basic data over the years, a comprehensive review of methodology for national accounts statistics has constantly been undertaken by the CSO with a view to updating the data base and shifting the base year to a more recent year. As a result, base years of the National Accounts Statistics series were shifted from 1948-49 to 1960-61 in August 1967, from 1960-61 to 1970-71 in January 1978, from 1970-71 to 1980-81 in February 1988, from 1980-81 to 1993-94 in February 1999, from 1993-94 to 1999-2000 in January 2006 and from 1999-2000 to 2004-05 on 29th January 2010.

The reason for periodically changing the base year of the national accounts is to take into account the structural changes which have been take place in the economy and to depict a true picture of the economy through macro aggregates like GDP, consumption expenditure, capital formation etc. For examining the performance of the economy in real terms through the macroeconomic aggregates like Gross Domestic Product (GDP), national income, consumption expenditure, capital formation etc., estimates of these aggregates are prepared at the prices of selected year known as base year. The estimates at the prevailing prices of the current year are termed as “at current prices”, while those prepared at base year prices are termed “at constant prices”. The comparison of the estimates at constant prices, which means “in real terms”, over the years gives the measure of real growth.

Choice of 2004-05 as the Base Year
In the past, National Accounts Statistics were revised decennially changing the base to a year, which ends with 1. It was primarily because in the base year estimates of national accounts aggregates, the information on work force plays an important role and work force estimates were obtained from the Population Census conducted decennially in the years ending with 1. This practice continued upto the series with base year 1980-81. Since then, the CSO started using the work force estimates from the results of Quinquennial Employment and Unemployment Surveys of National Sample Survey Organisation (NSSO), which are conducted once in every five years, and consequently started revising the base years of national accounts statistics once in every five years coinciding with the years for which the NSSO conducts the Quinquennial Employment and Unemployment Surveys. In continuation with this practice, the new series of national accounts has been released with base year 2004-05 on 29thJanuary, 2010 using the work force data from the results of NSS 61st round (2004-05) on Employment and Unemployment Survey.

Improvements in coverage and procedures of compilation

The improvements in terms of coverage have been mainly the inclusion of production of industrial wood from trees outside forests (TOF), fodder from forest sources and output of wind power generation in the GDP estimates.

The important procedural changes made in the new series are the incorporation of data on (i) area and production of crops as finalized by the States/UTs for the final estimates of GDP; (ii) consumption of fertilizers in agriculture, as provided by the Fertilizer Association of India in lieu of data on dispatches of fertilisers being used at present from the same source in the estimation of inputs of agriculture sector; (iii) results of the CSO’s Annual Survey of Industries (ASI) in place of the index of industrial production (IIP) for estimating the GDP of registered manufacturing; (iv) labour input on the basis of work-place as against the present practice of using labour input data on the basis of location in respect of estimation of GDP of unorganised manufacturing and services; and (v) labour input for the organised sector from the NSS Employment and Unemployment Surveys in place of the present source, namely, the Annual Employment Market Intelligence (EMI) of the Directorate General of Employment and Training (DGET), Ministry of Labour.

Other procedural changes in the new series include (i) treating R&D expenditures in public sector as capital expenditures in line with the recommendations of 2008 SNA; (ii) adopting the declining balance (of life of assets) method for estimating the consumption of fixed capital and capital stock; (iii) adopting the user cost approach for estimating the services of owner occupied dwellings in rural areas as against the present practice of imputing these services on the basis of rent per dwelling; (iv) estimating the output of communication in nominal terms on the basis of data available on average revenue per user (ARPU); and (v) improvements in the estimation of output, consumption expenditure, saving and capital formation of autonomous government bodies and local bodies by analysing their accounts on a sample basis.

The overall GDP at factor cost in the new series for the year 2004-05 is estimated at Rs. 2,967,599 crore as against the old series estimate of Rs. 2,877,701 crore at current prices for the same year, thereby indicating that the level of GDP has gone up by Rs. 89,898 crore or 3.1 per cent, in the new series. This overall increase is the net result of upward/downward revisions in the estimates of various industries. Out of the economic activities, maximum upward revision in GDP data is witnessed in ‘forestry’ followed by ‘real estate, ownership of dwellings and business services’, while major fall in GDP is in the activities of ‘agriculture’ and ‘registered manufacturing’.

References:
New series of National Account Statistics (Base Year 2004-05) , Central Statistical Organisation, Ministry of Statistics & Programme Implementation, Government of India March, 2010