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India’s GDP Numbers Faulty? NSSO Report Finds Several Companies Used To Calculate GDP Untraceable, Closed or Shell Corporations

15% of firms listed in the MCA-21 database were closed or could not be traced, 21% were wrongly classified.

Indian GDP numbers are under the scanner again as the companies used to calculate it either could not be traced or were wrongly classified, as per a National Sample Survey Office (NSSO) report. These companies were earlier deemed as “active companies” by the ministry of corporate affairs (MCA).

Pramit Bhattacharya writing for Mint reported that a 12-month NSSO study released last week has found that as much as 36 per cent of companies that were part of the MCA-21 database, used to calculate India’s GDP, could not be traced or were wrongly classified.

Two detailed NSSO reports based on the survey had to be junked because the results were so disappointing, the Mint report said.

Statisticians told the financial daily that the use of the untested database in India’s national accounts raises troubling questions about the decline of the Central Statistics Office (CSO) and reliability of the country’s official statistics.

“This is a devastating blow for CSO,” said R Nagaraj, a professor at the Indira Gandhi Institute of Development Research in Mumbai.

Nagaraj further said, “Some of us had repeatedly asked CSO officials to verify the MCA-21 numbers before using them in national accounts, but they finalised the new series without adequate scrutiny and debate.”

Dodgy methodology

The new GDP series was launched in 2015. An essential difference in this new series was the use of the MCA-21 database, which CSO sourced from the MCA. Several economists had reportedly questioned the new methodology, even as it was being introduced.

Critics had argued that the database included many fictitious or shell firms that existed only on paper. They also said that the methodology used to plug in the MCA-21 numbers in the national accounts would lend an overestimation bias in GDP numbers. They had demanded the MCA-21 database be made public.

Earlier statisticians at the CSO had defended the use of the new database. However, they stopped short of making it public. Now, their colleagues from NSSO have warned about the presence of a large number of ghost companies in the database.

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NSSO gets involved

Plans to present two NSSO survey reports on the service sector (74th round) based on the MCA-21 database were changed by National Statistical Commission (NSC) to the presentation of one short technical report after the discrepancies were discovered.

Mint reported that this short NSSO technical report highlights the gravity of the problem. Fifteen per cent of the firms listed in the MCA-21 database either could not be traced or were found to be closed. Another 21 per cent were found “out of coverage”, suggesting they were no longer operating as service sector firms. Others did not respond to survey questions or maintained proper accounts based on which data could be harnessed.

“The problem of non-response was severe in case of units chosen from MCA frame,” the report said.

It added, “About 45 per cent of MCA units were found to be out-of-survey/casualty while EC/BR (economic census/business register) frame had about 18 per cent of such cases.”

Nagaraj told Mint that the report showed many of the companies were fake or shell firms. He said, “They remain legally registered but without producing goods and services.”

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Former NSC member and ex-NSSO chief PC Mohanan told Mint that the MCA-21 database did not receive the scrutiny it should have.

Mohanan said, “The CSO should have done some kind of critical scrutiny and validation before using the MCA-21 database in the new GDP series, either through quick surveys or by comparing with other databases, or consultations with accountants familiar with company filings.”

He added, “That kind of critical examination was always done by CSO whenever they introduced new databases earlier, but I am not sure if MCA-21 data was examined in the same manner. This was all the more important because unlike other databases such as ASI or NSSO surveys used by CSO, this database is not publicly available.”

TCA. Anant, the then chief statistician under whose watch the new GDP series was prepared, declined to comment on the issue. He told Mint that he was a member of the Union Public Service Commission now and would not like to speak to reporters.

A ministry of statistics and programme implementation spokesperson, too, refused to comment on the implications for the GDP series.

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