RBI switches back to GDP model from GVA model to measure economy

The Reserve Bank of India switched back to gross domestic product (GDP) model from the gross value added (GVA) methodology to provide its estimate of economic activity in the country. The switch to GDP is mainly to conform to international standards and global best practices.

Key Facts

The GVA methodology gives picture of state of economic activity from producers’ side or supply side whereas the GDP model gives picture from consumers’ side or demand perspective. Globally, performance of most economies is gauged in terms of GDP model. This is also approach followed by multilateral institutions, international analysts and investors because it facilitates easy cross-country comparisons.

Background

Government had started analysing growth estimates using GVA methodology from January 2015 and had also changed the base year to 2018 from January 2018. Even the Central Statistical Office (CSO) has started using GDP model as supply-side measure of economic activity as main measure of economic activities since January 15, 2018.