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Concept of Base Year in Growth Rate of Economy

Concept of Base Year in Growth Rate of Economy

Concept of Base Year in Growth Rate of Economy

Definition of Base Year-
The Base Year is known as the first of the series of years in the financial and economic index. The Base Year is normally set to an arbitrary level of 100 in an index. The level is selected to calculate the rising and falling of the percentage can be easily determined. To keep the recent data in a particular index the base years are periodically introduced. Though any year can be chosen as a Base Year, experts generally choose the recent one. The Base year is generally changed after every 10 years as there will be normally a price hike of every commodity during this time period.

Importance of Base Year-
Base Year can compare in the measure of economic index or business activity. It can be the starting point of an economic Growth Curve.
The Growth Rate of an economy can be depicted by Base Year by using this Growth Rate-Base Year equation.
Base Year also helps in the calculation of sales of a company as it is indicated as the starting point.

Calculation of Base Year-

  • The Base Year can be determined simply by this following equation. Change in GDP/Initial GDP * 100 = GDP Growth Rate 
  • GDP of any of the previous years is chosen as the initial GDP and that particular year is chosen as the Base Year.
  • Any of the recent years is chosen as the Base Year to get the appropriate Initial GDP which has relevance with the present year.
  •  As example if 2005 is chosen as the Base year, then the GDP can be 150. In 2017, there are many new sectors like Telecom, IT, e-commerce which play major role to determine the dimension of the economy. As these factors were not present in 2005, the initial GDP of 150 cannot give the absolute Growth Rate. So, the Govt. has decided to choose the 2011-12 as the Base Year.

View of Govt.-
According to the Chief Statistician of India and Secretary of the Ministry of Statistics and Programme Implementation T C A Anant, the new Base year is selected as per the recent survey on employment, informal sector, occurrence of natural calamities like Drought and the household consumption. A Base year should be changed after every five years to get the actual and perfect Growth Rate of the economy.  After the implementation of GST, there must be some new set of data which would be helpful to measure the Growth Rate of the running year.The data can be easily understood and can facilitate the international compatibility.
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