Trends of National Income in India

Methods of National Income Accounting in India

• United Nations for the sake of uniformity and comparison suggest methodology to nations.

• India follows the methodology suggested by UNO and divides the economy in 14 broad categories which are further organized in three groups A, B and C.

Methods of National Income Accounting in India

• In Group A has 6 activities viz : 1. Agriculture2. forestry, 3.mining 4. finishing 5. quarrying and registered manufacturing and 6. construction.

• Production method is used for these activities The value addition is calculated by deducting value of raw material and inputs from the aggregate production commodity wise

Methods of National Income Accounting in India

• In group B has Electricity , railways ,Air Transport ,water ,organized transportation ,Communication, banking , and insurance , real estate, public administration and defense.

• Income method is adopted for these activities. All types of factor income reported in the accounts of these organization are aggregated.

Methods of National Income Accounting in India

• In group C, gas and water supply , unorganized road and water transport, storage , trade , hotel and restaurants , ownership of dwelling and other services are included.

• For this group sample survey is done to find out average productivity of the workers.

• Estimates of the work force are interpolated and extrapolated and periodical computation of average productivity are carried forward and backward . The year to year productivity so derived are then multiplied to arrive at the estimates of value added.

Trends of National Income( Percent Per annum) : The Hindu Growth rate

Period Target Actual

First Plan (1951-56)

2.1 3.5

Second Plan (1956-61)

4.5 4.2

Third Plan (1961-66)

5.6 2.8

Fourth Plan (1966-75)

5.7 3.2

Fifth Plan(1974-79)

4.4 4.7

The target growth rate in first three plans was set with respect to National Income .In fourth Plan it was Net Domestic Product and thereafter it has been GDP( at factor cost) Actual Growth rates are in terms of National Income ( NNP at factor cost at 1999-200 Price )

Trends of National Income( Percent Per annum) The Hindu Growth rate

Period Target Actual

Sixth Plan ((1980-85) 5.2 5.5

Seventh Plan (1985-90) 5.0 5.6

Eight Plan ( 1992-97) 5.6 6.5

Ninth Plan (1997-2002) 6.5 5.5

Tenth Plan (2002-07) 8.0 7.8

1951-1980 3.6

1981-1990 5.6

1992-2007 6.1

The target growth rate is at GDP( at factor cost) .Actual Growth rates are estimated in terms of National Income ( NNP at factor cost at 1999-200 Price )

National Product by Industry Origin Industry Group

1.Primary of which 21.3 Agriculture 19.5Mining and quarrying 1.82.Secondary of which 22.2 Manufacturing Registered 8.6 Manufacturing unregistered 4.5 3..Tertiary of which 56.4Transport and communication and Trade of which

28.0

Railway 1.1Trade and Hotel 16.9Finance and Real Estate of which 14.4 Financing and Insurance 7.3Community and Personal Services of which 14.0 public administration and defense 5.5

The share of Primary sector was 75 percent in the first decade of twentieth century came down to 21.6 percent in 2006-07

Sub sector 1970-71 price At 1980-81 price At 1999-2000 prices

1960-61 1970-71 1981-82 1991-92 2006-07

Agriculture and allied

54.4 47.4 36.5 29.4 19.5

Mining and Quarrying

0.9 0.9 1.4 1.5 1.8

Primary Sector

56.6 50.1 41.1. 33.2 21.3

Declining share of Agriculture Progress of stagnation

• This decline is more because of rate of growth has been less than other sector.

• The rate of agriculture growth has been less than the overall growth of the economy

• Agriculture still is the single largest contributor is GDP

Deceleration in Agriculture Growth

Rate of Growth of Agriculture 1951-52 to 2006-07

Period Total Economy

Agri. and Allied

Crops and live stock

Non agriculture

Pre Green Revolution 1951-52 to 1967-68

3.7 2.5 2.7 4.9

Green revolution 1968-69 to 1980-81

3.5 2.4 2.7 4.4

Wider technology Dissemination period 181-82 to -1990-91

5.4 3.5 3.7 6.4

Early Reform Period 1991-92 to 1996-97

5.7 3.7 3.7 6.6

1997-98 to 2006-07

6.6 2.5 2.5 7.9

Govt of India – Economic Survey 2007-08 table 7.1

1. The rate of growth of agriculture ( 1950-51 to 2006-07) about 2.7 percent is much less than other sectors, but on an average higher than the growth rate of population 2.1percent

2. The rate of growth of food grain production in 1990-2007 decelerated to 1.2 percent , lower than the growth rate of population 1.9 percent per annum

Structural Change in Manufacturing

1. The share of registered manufacturing over the period of time has grown and that of unregistered has declined .

2. Although the growth rate of industrial production has been less than stipulated in plan , but the industrial growth rate of impressive vis-à-vis agriculture

Annual Compounds Growth rate of Index of Industrial Production (1951 to 1979)

Use Base Classification

Building Industrial Base Industrial deceleration

1951-55 1955-1960 1960-65 1965-1976 1974-79

Basic Goods 4.7 12.1 10.4 6.6 8.4

Capital Goods 9.8 13.1 19.6 2.6 5.7

Intermediate Goods

7.8 6.3 6.9 3.0 4.3

Consumer Goods 4.8 4.4 4.9 3.4 5.5

(a) Durables 6.2 6.8

(b) Non durables 2.8 5.4

General Index of Industrial production

5.7 7.2 9.0 4.1 6.1

Annual Compounds Growth rate of Index of Industrial Production (1980 to1992)

Period of Industrial Recovery Use Base Classification

1981-85 1985-90 1990-91 1980-81 to 1991-92

Basic Goods 8.7 7.4 3.8 7.4

Capital Goods 6.2 14.8 17.4 9.4

Intermediate Goods

6.0 6.4 6.1 4.9

Consumer Goods

5.1 7.3 10.4 6.0

(a) Durables 14.3 11.6 14.8 10.8

(b) Non durables

3.8 6.4 9.4 5.3

General Index of Industrial production

6.4 8.5 8.3 7.8

Annual Compounds Growth rate of Index of Industrial Production (1992-2006)

Post Reform PeriodUse Base Classification

Pre reform period (1980-81 to 1991-92)*

1992-93 to 1996-97

1997-98 to 2001-02

2002-03 to 2006-07

2005-06 2006-07

Basic Goods 7.4 6.8 4.1 6.6 6.7 10.3

Capital Goods 9.4 8.9 4.7 14.4 15.7 18.2

Intermediate Goods

4.9 8.5 5.8 6.2 2.5 12.0

Consumer Goods

6.0 6.6 5.5 9.6 12.0 10.1

(a) Durables 10.8 13.4 10.7 8.8 15.3 9.2

(b) Non durables

5.3 4.8 3.8 10.0 11.0 10.4

General Index of Industrial production

7.8 7.4 5.0 8.2 8.2 11.5

Other trends in Secondary sector

• The growth of water – gas and electricity services has been quite less.

• The share of construction has risen from 4 percent in 1950-51 to 6.2 percent and thereafter it increased to about 7.4 percent in the year 2005-6

Change in Tetriary sector 1. The tetriary sector has

registered significant growth, as its share in GDP has gone up from one fourth to close to sixty percent

2. All the groups and sub groups of this sector have grown substantially

3. Among transport trade and communication the share of trade , hotel and restaurant has grown from 13 percent in 1960-61 to 16.9 percent in 2006-07. The share of communication- IT enable services in to the GDP has gone up to 7 percent (2007-08)

Changes in Tertiary Sector • The share of financial and insurance sector has

gone up from 1.3 percent of GDP in 1960-61 to 7.3 percent in 2006-07

• The share of real estate has also gone up from 3 percent of GDP in 1970-71 to 7.1 percent in 2006-07

• The share of services has gone up from 9 percent in GDP in 1960-61 to 14 percent in 2006-07 and in the share of government services has gone up from 3.2 percent of GDP to 5.5 percent in the said period .

Growth of Service Sector ( in percent )

Some Implication Though these trends are in line with global trends, two features

are distinctive to India.s services sector. First ;

The share of agriculture in GDP has declined by about 25

percentage points, while industry and services gained equally. The share of industry has stabilized since 1990 and

consequently, the entire subsequent decline in the share of agriculture in GDP has been picked up by the services sector.

This trend (rising share of services in GDP and corresponding)decline in the share of agriculture and manufacturing sector) is seen in the growth process of high-income countries and not in general in developing countries.

Some Implication

• Secondly, Employment in services has not been in proportion to their rising share in GDP and trade in India, unlike in the rest of the world. In 1999-2000, services contributed around 24% of employment in India, in contrast to 30% in middle-income countries, 70% in Singapore, and around 35% in Thailand.

These features of India’s services-led growth cast doubts on its sustainability in the long run.

Some Implication

sectors that have large potential for generating employment, e.g. construction ,transport and professional services, have grown slowly. Faster growing sectors, e.g. services and Communications and financial business services, have a low potential for employment generation.

In addition, employment elasticity has declined in the fast growing services like financial and community services.

Some Implication

software services have the highest productivitylevels, followed by tele-communication,

banking, and construction. These are also services that are growing faster

and have high shares in GDP and employment. Higher labor productivity in these segments may have slowed down growth in employment in services.

Some Implication

• Services that have very high forward and backward linkage- transportation has slow growth rate. As it is the most crucial component of Infrastructure – its slow growth hampers the growth of all sectors

Rashmi Banga :Critical issues in India’s Service Led growth, Asian Development Bank,INRM Policy Brief No. 2 . http://www.adb.org

Informal sector accounts for 58 percent of NDPRamesh Koli: The informal sector in the national Accounts of India

www.iaria.org/paper/2007