Economic data was never fudged as although 38% companies were wrongly classified under service sector, their output had been already calculated for GDP purposes
India’s politicised intellectuals claim to be independent but always latch on to even the slightest news which is useful, according to them, to deride the Narendra Modi government. It doesn’t matter to them that such mindless criticism affects their own image and attempts to hamper India’s credibility at global stage. One such recent example is the way these intellectuals and economists have tried to see the National Sample Survey Organisation Report titled ‘Technical Report on Service Sector Enterprises in India’.
In this report, NSSO stated that nearly 38% of the companies which were surveyed for GDP data using the ministry of corporate affairs 21 database were unusable for data collection purposes. The report further bifurcated this 38% companies into various categories which were “out-of-coverage companies” at 21%, 12% were untraceable and 4.5% companies were closed.
All these intellectuals needed just this single line to cast aspersions on the entire GDP data itself. These highly politicised lot started saying that the entire integrity of the GDP data is questionable now.
It’s much ado about nothing as 38% companies were wrongly classified under service sector but their output had been already calculated for GDP purposes.
What is MCA-21 database?
MCA-21 is the online portal where private, public, one-person and limited liability partnership firms upload their data. I am a practising company secretary and I have been using this portal since its launch and have seen it evolve. Firms are supposed to upload their annual returns/reports balance sheets and profit and loss account (other documents as well but for GDP these are important) onto this portal. As the entire filing is done online and statements are duly audited by a chartered accountant, this database provides for an authentic source of primary data which is definitely useful for any economist.
Further, the companies during incorporation have to provide the NIC industry code for their respective activities which helps the government to see turnover/capital/profit and other details based on industry/sector, at the click of a button. After the Income Tax database, the MCA-21 is one of the most robust and reliable sets. There is no doubt that this decision to take information from here is a superb move.
Problems with MCA 21 database
During and after demonetisation, probably with a larger goal in mind, the government started issuing show cause notices to firms/companies which were not filing the mandatory returns and asked them to either comply or explain the reasons thereof. Whichever companies failed to do so were treated as what we now call “shell companies” and were removed from the MCA-21 database.
Effectively these companies were “deregistered” and their bank accounts were frozen. So, to explain in simpler words: those that did not comply with the law were treated as “shell companies” and “removed” from the database. This was move number 1 to clean the database of fake entries. Approximately 3 lakh companies were deleted. It is possible that many entities which were doing genuine business but were non-compliant in law also got deleted hence such genuine companies were given a window to approach National Company Law Tribunal, show that they aren’t shell companies, that they have genuine business and get their names restored in the database. Obviously a fake company will never do this. A genuine company would comply and the database would capture their numbers in GDP output. Hence objective no. 1 was successfully achieved.
The second issue was to make the database even more reliable. For example, a “shell company” is operating in the field of issuing fake tax invoices for money laundering. In common parlance, such companies are called khokha companies or dabba companies. They say there is honour among thieves so these companies would get their books audited and comply with all requirements under the Companies Act. So, in “action 1” explained above, these entities might not have been issued any show cause notice because they are “compliant”. But speaking in economics terms, are these firms adding to any output in the GDP?
The answer is no. Hence the database needed more cleaning. The ministry then framed rules for “Director KYC” and “Form Activ” compliance. Under these the entity directors were supposed to confirm their address, phone numbers and email IDs via a simple form to ensure they are real people with genuine IDs and addresses. Lakhs of people couldn’t comply with the same hence their Director Identification numbers were deactivated.
Secondly the ministry framed rules to make it compulsory for the firms to provide latitude and longitude data of their registered addresses along with photograph from outside and inside of the premises. The last date to comply is June 15, 2019. The aim of this exercise is to track shell companies which might be filing documents regularly but might not be having any office or premises but were just paper companies or maybe many companies registered in single premises which is the usual modus operandi.
Where exactly is the NSSO ‘problem’
Any company which has not complied with the above is termed a non-traceable, out-of-coverage companies. A combination of above two methods along with field visits, merging GST and Income Tax database gives us a database which is reliable, consistent and elaborate. We are right now going through that phases and hence the NSSO report called the 38% companies as unusable data. Does it mean that the output numbers are wrong?
Obviously not. The NSSO data was specifically regarding the service sector. “Out of coverage” entities were 21% which means that they weren’t working in the service sector but while filing the MCA documents they had wrongly claimed to be service companies. Assuming that these companies are into manufacturing, does it make their output data irrelevant?
Obviously not. It was irrelevant or out of coverage for this particular NSSO study. The way forward is to ask these companies to correctly classify themselves as per the relevant NIC Industry code. Does it make the entire GDP numbers wrong by 38%? There is no bigger joke than this. Ministry of statistics planning and implementation said the exercise was meant to understand the data gaps and take remedial steps while undertaking the new base revision exercise for the proposed 2017-18 series. Fake intellectuals are attacking the government for finding the faults in the data.
Have you ever seen an economist who hates quality data? Well we have many in India. Have you ever seen an intellectual who hates making databases robust, let me know I will show you many. Can you imagine that some academicians hate it when the Index Bases and its constituents are revised to reflect the current reality. These fake intellectuals are anti-logic and highly politicised. Show me one commentator who told you the entire picture as stated above. Have we seen anyone who is commenting on the entire process ? Let me bet, half of them don’t even know about these things or what efforts are being take. It is shocking to see people commenting on matters without an iota of understanding or knowledge.
Whenever data is in favour of the BJP, the Opposition and its friends in the media and intelligentsia start questioning the basis of the data itself. Starting from jobs to education to GDP numbers, the same modus operandi is applied. It does not matter to them that they are cynically undermining the sanctity of institutions on the pretext of saving these.
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Last Updated May 10, 2019, 8:02 PM IST