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How a Narrative on GDP Calculation based on ‘Missing’ Companies was Spread

Recently Pramit Bhattacharya wrote an article in Live Mint titled “New GDP series faces fresh questions after NSSO discovers holes”.

The Claim – New GDP data faulty?

This article quoting a NSSO survey said, a third of the firms or almost 38% of firms registered in MCA-21 database – whose data were supposedly used to calculate GDP – were found untraceable, or wrongly classified.  This raises fresh questions over the controversial and contested GDP numbers in India. In the same article, R. Nagaraj, a professor at the Indira Gandhi Institute of Development Research in Mumbai, was quoted saying, “This is a devastating blow for CSO”.

The Fact – It is not

As soon as the report about missing companies in MCA 21 database came out, a factual rebuttal was given by Pronab Sen, former chief statistician of India while speaking to The Hindu. Mr Sen had clearly explained:

  • MCA 21 database contains shell companies.
  • And, “if I don’t measure their output, I am not capturing a part of GDP. Shell companies are benami companies where you have a legitimate company doing a legitimate business, but for tax purposes is routing a lot of transactions through the shell company. The value creation is happening. If I ignore that, I am saying value creation is not happening, which is wrong.”

A government official associated with Ministry of Statistics, quoted by The Hindu, said, “Not being able to reach a company at a particular address means that the address is wrong, not that the production is not happening.”

According to another government official quoted by The Hindu, the MCA-21 database is a compilation of the audited financial returns filed by companies and this is reconciled with the corporate tax collected by the Income Tax Department. “If the database was unusable, then they would not match up with the tax collections,” the government official said. “But they do. What is filed in the company accounts is reconciled with taxes paid.”

Essentially, they are saying that these ‘’missing’’ companies as found by NSSO are shell companies. But they are somewhere linked to a business unit which is involved in value creation or production. And, since they submit their balance sheet regularly, if their production is not taken into account, it is underestimating the GDP of India. Also, an audited database is more genuine to be considered for GDP calculations.

It is also to be noted here that Modi government in order to bring India’s GDP calculation to international standards, made some changes to its calculation methodology. And, the introduction of MCA 21 database is also one of those changes. MCA 21 database is a database of all registered companies in India, maintained by Ministry of corporate affairs. These changes ensure that a true and more accurate picture of India’s GDP is reflected. We in a previous article have explained this in much detail as to how these changes have been done.

Further, the article quotes R. Nagaraj, who is a signatory in a political campaign against the Modi government on a previous occasion too. Thus, there is no surprise that he lends his voice to this false narrative too, which was busted in the few hours after it first came out.

Before the elections, a narrative about GDP methodology and calculation has already been carefully set by the opposition parties and their ecosystem. This makes it easy for them to spin any fact whichever way they want, especially during the ongoing elections. This false narrative of GDP data being faulty had already done enough damage to the credibility of the government on social media. India needs to be careful before buying any such fake narrative.