Reviewed by Oct 05, 2020| Updated on
In a financial index, a base year is the first of a series of years. It is, generally, set at an arbitrary amount of 100. The new and up-to-date base years are regularly added to keep data current to a database. Any year can be a base year, but analysts typically choose recent years.
When calculating a business operation or economic index, a base year is used for comparison. For instance, finding the inflation rate between 2013 and 2018 is the base year or the first year in the set time. Also, the base year can define the starting point from a growth point or a benchmark for calculating the same-store sales.
Many financial ratios are growth-based because investors want to know how much a given number shifts from one time to the next. The equation for growth rate is (Current year - Base year) / Base year. The past is the base period in the analysis of ratio.
Analysis of growth is a commonly used way of describing the performance of companies, especially for sales. For example, if the company raises revenue from Rs.50,000 to Rs.60,000 means that it has grown revenues by 20%, where Rs.50,000 is the base year.
The change in the base year captures the actual change in structures of the economy. The Ministry of Statistics and Programme Implementation (MOSPI) will decide on a new base year for the GDP series in a few months. The ministry is striving to bring in a new set of national accounts which would result in a revising the existing base year of 2011-12.
Though the MOSPI is considering 2017-18 as the new base year, no decision has been taken, and the expert's committees are awaiting some more data before finalising their opinion.