GDP scare (The Hindu)

Mains Paper 3: Economy
Prelims level: MCA-21
Mains level: Employment growth report

Context

•  The controversy over the Centre deferring the release of NSSO’s labour force survey which showed unemployment numbers in an unflattering light, a new one has broken out on the veracity of the MCA-21 database used in GDP calculations.
•  The NSSO had to shelve two planned surveys on the services sector, after it found big gaps in the MCA-21 data that it sampled.
•  Effectively, 15 per cent of the services firms from MCA-21 were not traceable, 21 per cent were ‘out of coverage’ and many others did not respond to queries.
•  The MCA-21 database makes up the bedrock of the corporate sector Gross Value Added (GVA) estimates for GDP calculations, under the new series.

Prima facie

•  It fears that the existence of shell companies in the MCA-21 database grossly overstates the country’s GDP seem to be overdone.
•  The NSSO’s findings relate only to registered companies that make up less than half of the services component of the GDP.
•  With over five lakh companies, the MCA-21 database also provides far wider coverage of the corporate universe than the Annual Survey of Industries used earlier.
•  Corporate filings on MCA-21 are audited and are the basis for tax payments, providing strong disincentives for misreporting this data.
•  It is also not surprising that MCA-21 should feature a good number of shell and brass-plate companies, as unlisted companies in India have always used multi-layered holding structures for their business operations for ‘tax planning’ purposes.
•  Including their results in GVA aggregates is not wrong provided there is actual value creation by their group entities.
•  But the controversy does flag two aspects on which the CSO needs to come clean the method used to classify shell companies into manufacturing or service firms and the basis for extrapolating GVA for irregular filers.

Significance of MCA 21

•  Overall, the ruckus over MCA-21 demonstrates the extent to which public confidence in the credibility of the official statistics has been undermined by recent events be it the Centre’s botched handling of the release of the GDP back-series with the NITI Aayog’s unnecessary involvement, or its attempts to suppress the labour force survey.
•  The CSO’s policy of maintaining radio silence whenever critical questions are asked about the new series be it on the GDP deflator or drastic revisions of past data does nothing to bolster confidence either.
•  Given the key role that GDP estimates play in external investor perception of the country and the business plans of both the government and private sectors.

Conclusion

•  It is imperative that the Centre refrains from politicisation of economic data and lays off interference in the workings of its statistical arms.
•  The CSO not only needs to assert its autonomy in its interactions with the government, but must also be seen to doing so, for the public to repose confidence in its professionalism.

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Prelims Questions:

Q.1) Recently Indian Railways and the National Commission for Protection of Child Rights (NCPCR) have jointly launched an awareness campaign on Protection of children. Consider the following statements regarding National Commission for Protection of Child Rights (NCPCR):
1. It is a constitutional body.
2. It works under the administrative control of the Ministry of Women & Child Development.
3. The Child is defined as a person in the 0 to 18 years age group.

Which of the above statements are correct?
(a) 1 and 2 only
(b) 1 and 3 only
(c) 2 and 3 only
(d) 1, 2 and 3

Answer: C
Mains Questions:
Q.1) Critically evaluate the fears over shell companies inflating the GDP are overdone, but the CSO needs to be more transparent in its methods.