A worker uses a cutting torch in a workshop in a steel and iron market area of New Delhi, India. (Photographer: Prashanth Vishwanathan/Bloomberg)

Finance Ministry Defends Use Of ‘Out-Of-Survey’ Companies In Calculating GDP

The Finance Ministry defended the use of ‘out-of-survey’ services companies in calculating the gross domestic product, saying these are engaged in economic activities and cannot be excluded.

This comes after a technical study on India’s services sector by National Sample Survey Organisation pointed out that 38.7 percent of a sample of 35,456 companies in the services sector were found to be ‘out-of-survey’ when the MCA-21 database was used to compute the GDP data. This includes closed, out-of-coverage, non-traceable units, the study said.

Of the 38.7 percent, ‘out-of-coverage’ enterprises comprise 21.4 percent, the Finance Ministry said in a statement. These companies are engaged in some economic activity, possibly in the manufacturing sector, and cannot be classified as ‘out-of-coverage’ enterprises for GDP calculations, or included in the service sector survey, it said.

Of the balance 17.3 percent ‘out-of-survey’ establishments, 0.9 percent are not considered for GDP estimation and the rest are either closed or non-traceable, it said.

“With continuous evolution of the MCA database, the proportion of closed and non-traceable enterprises has been falling…thus the extent of overestimation of GDP in all likelihood is marginal,” the statement said.

The Ministry of Statistics and Programme Implementation, too, clarified yesterday that non-traceability of several companies in the database does not impact the existing GDP or gross value added estimates.

From 2012-13 to 2016-17, according to the Finance Ministry, number of firms whose annual returns were not available for GDP estimation accounted for only 12-15 percent of paid-up capital of all enterprises in the MCA database.

Most of the non-responsive enterprises did not provide data as they had the option of filing returns in subsequent years but continued to engage in activities reflected in their previously filed return. Therefore, its inclusion in the overall GVA estimation was legitimate, the statement said.

“The MCA database on the private corporate sector is a valuable addition to the data source available for estimation of GDP and its use provides a more correct measure of economic activity in the country,” it said.

Also read: NSSO’s Services Sector Study: What It Means (And Does Not Mean) For India’s GDP Data