Leaving out shell companies would seriously underestimate GDP: Former Chief Statistician

The National Sample Survey Office (NSSO) has found many holes in MCA-21 data used for GDP calculation, hinting that it probably overestimates the GDP. The former Chief Statistician of India Pronab Sen, though, has a completely different view on the issue.

After a business daily reported, quoting the study conducted by the NSSO, that 36 per cent of companies that are part of MCA-21 database of companies and are used in India's GDP calculations could not be traced or were wrongly classified, question have been raised in the Central Statistics Office (CSO) has been over-estimating the GDP.

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Pronab Sen has a very different take on this. He says that if you leave out shell companies, you would be under-estimating the GDP seriously for the very simple reason that wealth creation is going on in the parent company but it is showing up in the books of shell companies.

He explains, "Shell companies essentially are accounting companies that have been created so that the parent company can show its earning and expenditure in the books of account of a shell company and lower its tax liabilities. Essentially, the parent company is showing lower income by showing a part of their income in the books of shell companies."

So, if you don't pick up the shell companies you are not picking up the (real) wealth creation going on in the parent company.

Talking about the NSSO report, he says the NSSO report has been completely misinterpreted and it has nothing to do with the GDP calculation. "What the NSSO is necessarily saying is that there are active companies in the MCA which do not have a physical location. So, there is an address but nothing is happening there," he says.

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According to him, the NSSO is necessarily saying that there are a lot more shell companies than what you had expected, but instead of picking on that people are picking up on GDP calculation.

According to the Ministry of Corporate Affairs (MCA) there are around 9 lakh active companies are registered with the MCA after over 3.3 lakh companies were de-registered in two phases over 2017 and 2018.

It is to be noted that to weed out shell companies, the MCA has asked the companies to furnish photographs as well as longitude and latitude details of their registered offices.