[Model Answer QP2021 GS3]Explain the difference between computing methodology of India’s Gross Domestic Product (GDP) before the year 2015 and after the year 2015.


GDP is the sum of the final prices of goods and services produced in an economy during a given period. In simple terms, GDP is defined as a measure of the value of economic activity within a country. GDP is a measure primarily used as a yardstick to gauge the growth of a country.

In 2015, a new series was announced to calculate the GDP by upgrading the methodology with new data sources to meet UN standards.

Before 2015After 2015
Change in Base Year2004-052011-12
New Data Series for organised private SectorEarlier data for established companies were taken from the Annual Survey of Industries (ASI) or RBI’s sample of large companies for estimating corporate savings or investment.It included the data of all the companies registered with the ministry of corporate affairs, and each company was given a unique 21-digit code, hence MCA-21. Also, the new database is much more comprehensive covering financial institutions and regulatory bodies’ like- SEBI, PFRDA, and IRDA.Local organizations and institutions are well represented in this series.
Scale of MeasureGDP was calculated at factor cost. GDP is now calculated at Market Price. 
The international practice of valuing industry-wise estimates as gross value added (GVA) at basic prices was adopted. 
Financial Sector CoverageFinancial corporations in the private sector, other than banking and insurance, were limited to a few mutual funds (primarily UTI) and estimates for the Non-Government Non-Banking Finance Companies as compiled by RBI.The coverage of the financial sector has been expanded to include stock brokers, stock exchanges, asset management companies, mutual funds and pension funds, as well as the regulatory bodies, SEBI, PFRDA and IRDA.
Difference between computing methodology of India’s Gross Domestic Product (GDP)


So in essence, two things changed in the new series, the base year as well as the database. Change of base year is a common occurrence and is done to take into consideration the changing times and the outlook of the economy.

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