GDP was developed as a measure to capture the size of economic activity in a nation. The underlying premise is to capture the totality of value creation through human effort in a modern economy. It was originally developed in the US. The reason was that many countries were struggling to describe the consequences of great depression through an integrated measure.
Prof Simon Kuznets had researched on behalf of the US Congress, which became the basis for all subsequent GDP measurements. Because of the close relationship of this measure, GDP quickly became popular in all developed and developing economies.
As the measure of GDP was sought to be implemented in widely disparate economies, the system of measurement evolved through a series of UN consensus methodological documents entitled System of National Accounts (SNA). The most recent revision was in 2008, seeking to address many concerns on measurement of services, home production of goods and services, etc.
The last base revision of national accounts in India with reference to 2011-12 was to ensure compliance with SNA 2008. The details of changes introduced and challenges, which still remain are comprehensively outlined in reports of the various expert committees constituted as part of this revision process.
It should, however, be said that from the time of Kuznet’s original report, official statisticians while regarding GDP as an excellent activity of economy, have also pointed out that it does not give a complete measure of well-being. In fact, difficulties of using GDP are well-known and were identified most notably by Indian economists. Under the guidance of Prof K N Raj, a series of empirical studies documented the challenges of using GDP-based domestic product as indicators of well being.
These studies were subsequently been cited by many commentators including Prof Amartya Sen and UNDP to develop comprehensive indicators of well-being, which is a complex and challenging exercise.
The wide scope of its remit is best described by the most recent effort articulated in the UN’s Sustainable Development Goal agenda, where in order to describe a comprehensive notion of development, we have articulated 17 goals with 169 targets and over 200 statistical indicators. The measurement protocol is considered by all experts, to be a work in progress and these are challenges which official statisticians and development scientists are engaging in.
The author is Chief Statistican, at the Ministry of Statistics and Programme Implementation