The gap in manufacturing sector GVA

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The manufacturing sector includes the organised sector comprising registered factories and companies, and the unincorporated sector comprising small factories and workshops outside the corporate sector. | Photo Credit: S.

Siva Saravanan

Early this year, the National Statistical Office (NSO) released the new series of the National Accounts Statistics (NAS).

It shows that the manufacturing sector’s gross value added (GVA) is ₹38.6 lakh crore (₹38.6 trillion), constituting 14.7 per cent of GDP (gross domestic product) for the year 2023-24 at current prices.

How reliable is the official estimate?

This article investigates.

The manufacturing sector has two parts: One comprises all registered factories employing 10+/20+ workers with/without power, including registered companies (defined as the organised/formal sector).

The other comprises unincorporated/ informal/ household units consisting of small factories/workshops falling outside the corporate/factory sector.

The Annual Survey of Industries (ASI) reports the production accounts of the factory sector, while the Annual Survey of Unincorporated Sector Enterprises (ASUSE) covers the informal sector.

The combined output (GVA) of the factory and unincorporated sectors almost completely represents total manufacturing output.

For 2023-24, the sum of the GVA of units covered by the ASI and ASUSE is ₹27.4 lakh crore (the Alternative Estimate or, AE).

The official figure, as per the NAS, is ₹38.6 lakh crore.

It is higher than the AE by a whopping 40.9 per cent.

Let’s call this the GAP.

What could account for it?

While minor variations between the two estimates is understandable due to methodological or definitional issues, such a substantial GAP between the two estimates using official data sources surely raises many questions.

What are the data sources used for estimating the official GVA?

For the unincorporated sector, it is ASUSE – the same as what we have used to estimate the AE.

Hence, it cannot account for the GAP noted above.

Moreover, the unincorporated sector’s share in total manufacturing GVA is a mere 13.9 per cent.

Hence, the reason for the GAP must lie in the estimation of organised manufacturing output.

The NAS uses company balance-sheet data sourced from the Ministry of Corporate Affairs’ database (MCA-21), compiled using the annual statutory filings by registered companies.

This practice of using the MCA data began with the previous NAS revision (base year 2011-12), partially replacing the ASI.

The procedure has continued in the latest revision, with minor modifications.

A standard way to validate the GVA is to use employment data to estimate the sector’s potential output by applying appropriate “technical ratios” drawn from the ASI and ASUSE datasets.

The official Periodic Labour Force Survey (PLFS) for 2023-24, estimated that the manufacturing sector employed 697.5 lakh workers.

However, as per the ASI and ASUSE datasets, only 532.9 lakh workers were employed to produce the official GVA.

Thus, quite possibly, the contribution of the remaining 164.6 lakh “residual workers” — 697.5 minus 532.9 — may account for the GAP in the GVA reported above.

The definitions of employment in the three surveys are not the same, and their data collection methods differ.