Mumbai/New Delhi: Plugging data gaps in estimating business and economic activity won’t be easy as most enterprise and corporate databases used in India are flawed, economists warned on Thursday, a day after India’s statistics ministry said it would find ways to do so.

Mint reported on Tuesday that a key database introduced in India’s new gross domestic product (GDP) series, MCA-21, has now been found to be full of holes, citing a report prepared by the National Sample Survey Office (NSSO).

On Wednesday, the ministry of statistics and programme implementation (Mospi) said it was examining the findings of the NSSO report and that it would take “remedial steps" based on the findings to improve the GDP series when the next base change revision takes place. The ministry also said it would be launching the 7th economic census in June and use its results to create a national business register, which would be updated periodically.

Economists, however, said that given the problems with the existing state business registers and the economic census (EC) data, this won’t be an easy gap to fill.

“Each enterprise database has different coverage and some limitations," said Renu Kohli, a Delhi-based economist.

The NSSO report itself suggests that the EC and business register (BR) data collected so far are in a bad shape even though the proportion of companies from which data could be collected is higher for the EC and BR lists.

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While 47% of firms in the MCA-21 database of active services firms could not be sampled (either because they could not be traced, were closed, were not producing anything, or were mis-classified, or because of non-response), a significant chunk of firms in the other databases also had to be dropped from the survey for the same set of reasons: 17% of EC firms and 27.7% of BR firms could not be sampled.

NSSO enumerators highlighted the problems in sampling these firms. “In many cases, it was observed that the selected enterprises either did not prepare the annual audit report for 2015-16 or didn’t prepare balance sheets any time before," their report said. “This resulted in a delay in the progress of the survey and increase in the number of non-response cases."

“One common problem could be that many firms get registered, then either do not start production or start and quickly shut down, but continue on the records," said Kohli. “Apart from shell companies, the lack of exit could also be a problem."

The advantage of MCA-21 was that it is a dynamic frame, said Pronab Sen, former chief statistician of India. “But if you have such a high percentage of companies which are non-traceable, then it is not useful as a frame for a survey."

Others suggest that the classification of “active" companies by the corporate affairs ministry and used by both the Central Statistics Office and NSSO may lie at the root of the problem.

“There are all kinds of companies in the MCA-21 database," said Mahesh Vyas of the Centre for Monitoring Indian Economy (CMIE). “Some are active and others are not. If this classification is wrong, as the report in Mint suggests, then users will face problems. We at CMIE do not take this classification seriously."

The 74th round survey conducted by NSSO, on which the Mint report is based, used the list of “active" companies in the MCA-21 database, which includes any firm that had filed returns at least once in the past three years.

Kohli suggested that data from the Goods and Services Network (GSTN) could perhaps be used in future to validate data for larger, organized sector firms but added that for firms outside the GST ambit, benchmark surveys such as those conducted by NSSO would continue to be relevant.

“We require a census of working companies," said R. Nagaraj of the Indira Gandhi Institute of Development Research in Mumbai. “The Rangarajan commission in 2001 very explicitly said we must create a census of working companies. This has not been implemented even after nearly two decades. How to go about it is something that needs to be discussed but the fact is they haven’t even bothered to take the suggestion forward."

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