Implications of Index Number Problem on Sectoral Composition of the Back Series

Lack of the official back series of State Domestic Product (SDP) for most states makes it difficult for researchers and policy makers to engage in long-term analysis using SDP data. Hence, researchers working on regional issues have prepared back series of SDP on their own, generally following splicing approach. However, splicing approach creates serious discrepancies when one examines the sectoral composition of the state economies for years far away from the new base year, not only for the states but also at the national level. These discrepancies can influence studies examining structural change and sectoral contribution to economic growth. The present paper aims to explore this issue both at the national and state level. The paper highlights the need to use chain basedGDP for measuring long run growth. Also, there is a need to identify sources of volume revision between the new and old series in terms of the coverage of activities that did and did not exist in the base year of old series.