Pronab Sen Refutes Media Reports; Says It Would Be Wrong To Not Include Shell Companies In Calculating GDP

Refuting media reports, former chief statistician Pronab Sen on Wednesday (8 May) said that inactive companies listed in the MCA 21 company database would not have any singificant impact on the calculation of GDP or GVA, reports The Hindu.

In a bid to get an accurate picture of the economy, the government had begun using the corporate affairs ministry's MCA-21 database to calculate the Gross Domestic Product (GDP) and the Gross Value Added (GVA) in the country.

However, quoting an NSSO report that said that nearly 38 per cent of the companies listed in the MCA-21 database were unusable for data collection purposes, a section of economists raised furore over the integrity of national accounts data.

"In the sample, we took from the MCA-21 database, about 36% of the firms don't exist," said Pronab Sen, former Chief Statistician of India said.

"That doesn't surprise me one bit. The reason is we know that the MCA-21 contains shell companies. But, when you have shell companies in the MCA-21, and they are submitting their balance sheets regularly, they are very much a part of what I am measuring."

"The question is whether this is wrong, and the answer is no. Because, if I don't measure their output, I am not capturing a part of GDP," added Sen.

Describing why it was necessary to include inactive (or shell companies) in the national accounts, Sen said, "Shell companies are benami companies where you have a legitimate company doing a legitimate business, but for tax purposes is routing a lot of transactions through the shell company. The value creation is happening. If I ignore that, I am saying value creation is not happening, which is wrong."

“Not being able to reach a company at a particular address means that the address is wrong, not that the production is not happening,” noted a senior government official with the Ministry of Statistics.