Govt Weighs Shift to NDP from GDP as Key Metric of Economy
India is contemplating a pivotal transition from using gross domestic product (GDP) to net domestic product (NDP) as a primary measure of its economic performance. This shift aims to align national accounting practices with the United Nations’ System of National Accounts (SNA) 2025, as discussed by government officials.
Understanding NDP and GDP
– Current Reporting: India releases annual estimates for NDP alongside GDP but lacks quarterly NDP data.
– Definition of NDP: NDP is derived by subtracting depreciation of fixed assets and depletion of natural resources from GDP.
– Advantages of NDP:
– Described as conceptually superior to GDP in the SNA 2025 framework.
– Better reflects the true cost of production by accounting for:
– Depreciation: Measures the loss in value of capital utilized in production.
– Resource Depletion: Captures the decline in physical stock due to extraction and its impact on future economic value.
Global Context
– Current Status: Despite the advantages, GDP remains the dominant indicator of economic health globally, including in India.
– Focus on NDP: The move to emphasize NDP could provide a more accurate picture of economic sustainability.
Implementation Plans
– Evaluation of Changes: The statistics ministry is assessing necessary data and methodological changes to adopt the SNA 2025 recommendations.
– Sub-Committee Formation: An advisory committee on National Account Statistics has been established to oversee the implementation process.
– Target Timeline: Officials aim to implement these changes by 2029-30, following guidance from the International Monetary Fund.
Base Year Revision and GDP Growth
– Revision of GDP Base Year: The Ministry of Statistics and Programme Implementation (MoSPI) plans to update the GDP base year from 2011-12 to 2022-23, with new figures set for release on February 27.
– Recent Growth: India’s GDP growth surged to 8.2% in the second quarter of FY26, while both GDP and NDP grew 6.5% from the previous year.
Impact on National Accounts
– Central Bank Treatment: Upcoming SNA 2025 recommendations will alter how the central bank is treated in national accounts, reclassifying its output as non-market activity.
– Current Transfers: Fees for regulatory services by banks will be categorized as current transfers, influencing the reported value added in the financial sector without affecting key metrics like national saving or net worth.
Conclusion
The potential shift to NDP as a key metric could redefine how economic performance is assessed in India, focusing more on sustainability and resource management. As this initiative progresses towards implementation, it will be crucial for policymakers and stakeholders to ensure a smooth transition that provides clearer insights into the nation’s economic landscape.