Understanding the revision process of Indian GDP data

November 30, 2017

Nice article by Amey Sapre and Rajeshwari Sengupta. It is based on their paper.

They explain how estimates of GDP are built overtime:

In India, the Central Statistics Office (CSO) releases five estimates of annual GDP for any given year, over a period of two years and 10 months. The initial estimates (or projections) are called the Advance Estimates (AE) and Provisional Estimates (PE). Over time, the initial estimates are revised and are sequentially termed the First (1st RE), Second (2nd RE) and Third (3rd RE) Revised Estimates. Typically, for various stakeholders and for policy formulations, the initial GDP estimates are more relevant as they are available within the financial year. However, the true picture of the economy, in terms of the magnitude and direction of growth, unfolds over the entire revision cycle. It is thus important to study the revision cycle in order to obtain a detailed picture of growth in the economy. Studying revisions helps us to understand the methods, data sources, and the quality of GDP estimates in terms of reliability, credibility, and accuracy.

Hmm…Useful timeline..

Their findings of revisions for the period 2004-05 to 2016-17 show that there is fair bit of uncertainty on the final number:

The magnitude of revisions in annual GDP growth rates from the initial to the final estimate has, in general, been low. However, the direction in revisions suggests that for most years, the AE underestimated the actual GDP growth rate. The growth rate was almost always revised upwards in subsequent rounds thereby hinting at a downward bias. The figures also suggest that in most years the 2nd and 3rd RE have been close and consistently in one direction. This implies that the focus of improving data revisions needs to be on the AE as the discrepancy is much larger in these initial estimates. 

Sector-wise GDP revisions tell a different story. Following international practice, we divide the revisions into short term (AE – 1st RE) and long term (AE – 2nd RE). We find that for manufacturing, mining, trade, and community services, the short-term revisions on average, have been negative, implying that the initial projections of the sectors were underestimates. In contrast, when we compare long-term revisions (AE – 2nd RE), we find a reverse phenomenon for sectors such as electricity, construction, and financial services. Agriculture and trade are the only sectors where the short-term and long-term revisions have been in the same direction. Among all sectors, mining and quarrying shows the highest variability in long-term revisions. Table 2 summarises the revisions for all sectors.



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