Missing firms: govt. says not much impact on GDP working
The Hindu: May 10, 2019
The Finance Ministry on Friday clarified that the ‘missing’ enterprises in the MCA-21 database did not have a significant impact on the calculation of growth rates of Gross Domestic Product (GDP) and Gross Value Added (GVA) as these companies still added to the total output of the economy.
The National Sample Survey Organisation (NSSO) in a recent survey report on the service sector found that, of a sample of 35,456 companies taken from the MCA-21 database, 38.7% were out-of-survey unit.
“Some sections of the media have misinterpreted these out-of-survey enterprises (as classified for the purposes of surveying the services sector) to be enterprises that do not exist in the economy,” the clarification said. “On the basis of this interpretation, the suggestion has emerged that by not removing out-of-survey enterprises from the MCA database, Central Statistics Office (CSO) over-estimates the gross domestic product of the country.”
The Finance Ministry explained that of the 38.7% out-of-survey enterprises in the NSSO report, out-of-coverage enterprises comprised 21.4%. These out-of-coverage enterprises were those that were not engaged in activities intended for inclusion in the service sector survey.
“However, these enterprises are engaged in some economic activity, possibly in the manufacturing sector for instance,” the Ministry said. “As a result, they cannot be classified as out-of-coverage enterprises for the purposes of estimating the GDP of the country. In other words, the GDP estimates based on the aforesaid out-of-coverage enterprises are very much a part of overall GDP of the country.”
The Ministry did acknowledge that the bulk of the remaining 17.3% out-of-survey enterprises were either closed or untraceable, but justified this by saying that this proportion was falling over the years and that their impact on the overestimation of GDP “in all likelihood” is marginal.
“Crucially, we must note that the share of total paid up capital of the private corporate sector that is accounted by non-responsive enterprises affects GDP estimates using the MCA database, not the number of non-responsive enterprises in the private corporate sector,” it added.
In simpler terms, GDP estimates are affected by the share in the paid-up capital of the missing companies and not by their absolute number.
The Ministry provided data to show that from 2012-13 to 2016-17, the number of enterprises whose annual returns were not available for GDP estimation accounted for just 12-15% of the paid-up capital of all the enterprises in the MCA-21 database.
“As such, the GVA (gross value added) estimated for the responsive enterprises was increased by a blow-up factor of only 1.13-1.17 to estimate the GVA of the entire private corporate sector,” the Ministry said.
“Most of the non-responsive enterprises did not provide data because they exercised their discretion of filing returns in subsequent years while continuing to engage in activities reflected in their previously filed return.
Accordingly, their inclusion in the overall GVA estimation was legitimate.”
Lastly, the Ministry explained that while the blowing up affects the level of GDP, it does not affect the year-on-year annual growth rates in any material way.
“The proportion of firms in the MCA database that have ceased their operations varies minimally from year to year from 2012-13 to 2016-17,” the Ministry said.
“This feature ensures that although GVA levels could be slightly more or less than what they actually are, the growth rate of GVA from year-to-year will not be affected,” it added.
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