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Rajan raises doubt on new GDP calculation methodology

29 Jan 2016 Evaluate

After many economists and academicians, Reserve Bank of India (RBI) Governor Raghuram Rajan too has raised doubts over the new GDP growth rate methodology. He said that there is a need for better computation of numbers so as to avoid overlaps and capture the net gains to the economy. He added that 'There are problems with the way we count GDP which is why we need to be careful sometimes just talking about growth.' Dr. Rajan said that there were many suggestions from various quarters on the ways to calculate GDP in a better way and said such suggestions should be taken seriously.

Rajan further called for improving the method of calculating the country's gross domestic product (GDP) as the current practice does not adequately reflect value addition. He said there is a need to calculate data in such a way as to avoid an overlap and to capture the net value addition to the economy.

Rajan addressing the 13th convocation at the RBI-promoted Indira Gandhi Institute of Development Research said that “We should be careful about how we count. Obviously lots of people have thought how to improve our counting of GDP and going forward that is something that we will have to think about.”

A year back, the government changed the methodology for computation of GDP by moving from the factor or basic cost (which took into account cost of products received by manufacturers) to market prices (what is paid by consumers). The government had also changed the base year for GDP calculation from 2004-05 to 2011-12.

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