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The National Sample Survey Office’s (NSSO) recent study involving samples from the MCA-21 database has put the whole GDP computation methodology under fire, but on a wrong basis, according to former Chief Statistician of India Pronab Sen.
The NSSO study had revealed that there are several more shell companies in the system than what the Centre realised. Having numerous ghost firms — estimated at as high as one third of the active firms — in the MCA-21 sample does make it a non-representative sample, said statisticians and economy watchers. It places the NSSO in a difficult situation in drawing conclusions for its study, they added.
But stretching the argument on shell firms to GDP computation is uncalled for, Sen told BusinessLine . Media reports had said a third of the firms in the MCA-21, used to calculate GDP, cannot be traced.
Emphasis on price index
Rather than extrapolating the shell companies trend to GDP computation, it may be worthwhile for critics to demand that complaints on the new price index (used for the new GDP methodology) be addressed and steps taken to get the right prices, according to Sen.
“We always knew there were shell companies in the system. We were not aware of the magnitude of it. The government may have removed 30,000 shell companies in the recent past, but this shows that three-to-four times this level continues to exist,” he said.
Sen also emphasised that excluding shell companies for GDP computation will be wrong as it will underestimate the GDP.
“Shell companies...are actually reflecting wealth created and should form part of the GDP. If I don’t take shell companies into account for GDP computation, I would be underestimating the GDP. By taking them into account, I am not at the same time overestimating GDP,” he said.
Sen further highlighted that the primary purpose of the creation of shell companies is to transfer incomes to them and reduce the tax liability. Statisticians that BusinessLine spoke to felt the MCA-21 database (although riddled with inadequacies) with data on five lakh active companies is a much better source for national income computation than the erstwhile regime, wherein RBI-provided data on the top 2,000 companies is adopted for this.
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