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Thursday, March 1, 2012

NATIONAL INCOME AND RELATED AGGREGATES


CHAPTER 3


NATIONAL INCOME AND RELATED AGGREGATES


3.1.     Performance  of an economy  depends  on the amount  of goods  and services  produced  in that economy.  In monetary  terms  its measure  is the Gross  Domestic  Product  (GDP),  Gross  National  Income  (GNI),  and  Net National  Income  (NNI).  Apart  from  these  macro-economic  aggregates,  the other important indicators to measure health of economy are capital formation and savings. Thus, measurement  of these macro-economic  indicators is an extremely important exercise, which requires collection and analysis of large volume  of  data.  In  India  the  Central  Statistics  Office  of  the  Ministry  of Statistics and Programme Implementation have been measuring National Income and other related macroeconomic aggregates.

3.2.     The major concepts used in National Accounts Statistics and the inter relationship,  particularly  of those relating to macro-economic  aggregates  of domestic product, consumption, saving and capital formation are given in the following paragraphs.

DOMESTIC PRODUCT

3.2.     Domestic product by definition is a measure in monetary terms of the volume of all goods and services produced by an economy during a given period of time, accounted without duplication. The measure obviously has to be in value terms as the physical units of production and different measures of services are not capable of simple addition. In the case of a closed economy, this measure amounts to domestic product.

DOMESTIC PRODUCT AND NATIONAL INCOME

3.3.     The domestic product measures all goods and services arising out of economic activity, while national income is the sum of all incomes as a result of the economic activity. Since the production of goods and services is the result of the use of primary factors of inputs, namely, capital and labour, along with  the  raw  materials,  the  process  automatically  generates  income.  This income is in the form of return to capital and labour used in the production process.  National  income  includes  only  those  incomes  which  are  derived directly from the current production of goods and services, which are called factor incomes.

NATIONAL INCOME AND EXPENDITURE

3.4.     The production within the economy over a given period of time is spent either for consumption  of its members or for addition of fixed assets or for addition to the stock of existing productive assets within the country. Hence, production  can also be measured  by considering  the expenditure  of those who  purchase   the  finished   or  final  goods  and  services.   The  national

expenditure is the sum of expenditure of all spending of institutional sectors viz., government, households and enterprises. The expenditure on final goods and services may be purely for consumption  purposes  like consumption  of food, clothing, shelter; services etc., or for capital formation such as addition to buildings, plant, machinery, transport equipment, and the like. Some goods may not be immediately sold and may be kept aside as stocks. These goods which are added to stocks are also accounted for as final expenditure.

PRODUCTION/INCOME/EXPENDITURE

3.5.     The national income of a country can be measured in three different ways, from the angle of production,  from income generation  and from final utilization. These three forms are circular in nature. .

GROSS NATIONAL INCOME (GNI)

3.6.     The economy of India is not closed as there are transactions with rest of the world in the form of exports, imports, loans and the like. This gives rise to the concept of national or domestic income. Gross Domestic Product refers to the production  of all resident units within the borders of a country,  which is not exactly same as the production of all productive activities of residents. Some of the productive activities of residents may take place abroad. Conversely, some production  taking place within a country may be attributed to temporary and seasonal  foreign  labour.  The  Gross  National  Income  is  calculated  by  the following formula :

GNI = GDP + compensation of employees and property income receivable  from the rest of the world compensation  of employees and property income payable to the rest of the world.

CATEGORIES OF EXPENDITURE

3.7.     The income available to the individuals in the form of labour income or capital income or to the productive units in the form of retained income is then spent. The utilization or expenditure  of the income can take various forms, namely,  (a)  household  consumption  expenditure;  (b)  government consumption  expenditure;  and (c) capital formation  comprising  fixed capital formation and stock accumulation.

HOUSEHOLD CONSUMPTION EXPENDITURE

3.8.     The  household  consumption  expenditure  referred  to as private  final consumption expenditure (PFCE) in the National Accounts Statistics (NAS), consists  of expenditure  by households  (including  non-profit  institutions)  on non-durable consumer goods and services and all durable goods except land and buildings.

GOVERNMENT FINAL CONSUMPTION EXPENDITURE

3.9.  Government  final  consumption  expenditure  comprises  of  the compensation to the Government Employees and purchases of goods and services by the Government including purchases abroad. Compensation of Employees of general Government consists of wages and salaries and social security contribution.

GROSS CAPITAL FORMATION

3.10.   Gross   Capital   Formation   includes   only   produced   capital   goods (machinery, buildings, roads, artistic originals etc.) and improvements  to non- produced assets. Gross Capital Formation measures the additions to the capital stock of buildings, equipment and inventories, i.e. additions to the capacity to produce more goods and income in the future. The components of gross capital formation are

   gross fixed capital formation

   changes in inventories

   acquisition less disposal of valuables( such as jewelry and works of art)

3.11.   Gross Fixed Capital Formation includes purchases of new assets within the domestic market like buildings, transport equipment, machinery, breeding stock etc.; import of new assets; own account production of new assets such as production  of  rail  engines,  wagons,  trucks,  aero-planes,  farm  machinery, breeding stock of fish, sheep, cows etc. by the enterprise;  purchase  of new houses by consumer households and net purchase of second hand physical assets from abroad.

3.12.   Change in stocks (inventories)  consists  of the difference  between  the opening stock and the closing stock.

SAVING

3.13.   Saving   represents   the   excess   of   current   income   over   current expenditure of various sectors of the economy. It is the balancing item on the income and outlay accounts of the producing enterprises, households, government administration and other final consumers. For a closed economy, savings  equals  capital  formation  during  the  year,  whereas  for  the  open economy savings equals capital formation plus net capital inflow from abroad during the year.

GROSS VERSUS NET VALUE ADDED

3.14.   GDP does not take into account the depreciation factor because of which it does not reveal the complete  flow of goods and services  through  various sectors.  Thus,  the  term  net  product  is  considered  more  suitable  which  is

obtained  by  subtracting  depreciation  cost  from  the  gross  domestic  product. Capital goods like machines, equipment, tools, factory building, tractors etc. get depreciated  during  the process  of production.  After some time these capital goods need replacement.  The decline,  during the course  of the accounting period, in the current value of the stock of fixed assets owned and used by a producer as a result of physical deterioration, normal obsolescence or normal accidental damage is called Consumption of Fixed capital (CFC). Deduction of CFC from GDP provides with the net domestic product.

CURRENT VERSUS CONSTANT PRICES

3.15.   National income regardless  of the concept is obviously  measured  at prices prevailing during the period or in other words at current prices. When calculated  over a number of years, the changes in national income would, therefore, include implicitly not only the effect of the changes in production but also the changes in prices. This estimate compared over the period would not, therefore, give a proper measure of the overall real increase in production of the country or the economic welfare of the people or growth of the economy. Therefore, it would be necessary to eliminate the effect of prices, or in other words to recompute the whole series at given prices of one particular base year.  National  income  thus  computed,  is  termed  as  National  Income  at constant prices or in real terms.

SOURCES OF DATA

3.16.   Data  needed  for  computation  of  National  income  is  collected  from various diverse sources and is used not only for the actual computation  of National Income, but also for cross-checking the final National Accounts Estomate.

ADMINISTRATIVE RECORDS, CENSUS AND SURVEYS

3.17.   Some of the important sources of data, which have been used in the new series, are as follows:

(a)      NSS 61st  round (2004-05)  on employment  and unemployment and consumer expenditure;
(b)      NSS 62nd round (2005-06) on unorganized manufacturing;
(c)        NSS 63rd round (2006-07) on services sectors; (d)      All India Livestock Census, 2007;
(e)      NSS  59th   round  (2002-03)  on  All  India  Debt  and  Investment
Survey;
(f)       Population Census, 2001; and
(g)      Fourth   All   India   Census   of   Micro,   Small   and   Medium
Enterprises, 2006-07.

3.18.   Further,  the  results  of  various  studies  undertaken  by  the  Central Statistics Office through the Ministry of Agriculture,  Ministry of Environment and Forestry and State Governments and also the Input-Output Transactions Tables prepared by the Central Statistics Office and the Cost of Cultivation

Studies conducted by the Ministry of Agriculture have been used in the new series for updating the rates and ratios used to estimate the consumption of fodder,  market  charges  paid  by  the  farmers,  yield  rates  of  meat,  meat products and meat by products for different categories of animals, input rates for agriculture and forestry and the trade and transport margins.

INDUSTRIAL CLASSIFICATION

3.19.   Further, the Industrial Classification  used for computation of National
Income Estimates are :

(a)      ISIC Rev 3
(b)      National Industrial Classification 2004 (c)      HS classification for Foreign Trade

COVERAGE

3.20.   In  the  system  of  National  Accounts,  the  accounts  relating  to  the resident institutional sectors portray various facets of economic activity, i.e., production,   the   generation   and   distribution   pertaining   to   the   following institutional units:
Public sector

          Government Administrative Departments
          Departmental Commercial undertakings
          Non Departmental Commercial Undertakings
          Private Corporate Sector
          Households including NPISHs

HIGHLIGHTS

3.21.   Some of the important highlights of the this sector are as follows :

          Gross domestic product (GDP) at factor cost at constant (2004-
05)  prices  in  2010-11  is  estimated  at  `48,77,842  Crores,  as against `44,93,743  Crores in 2009-10, registering  a growth of
8.5 per cent during the year as against the growth rate of 8.0 per
cent during the previous year.

          Growth rates at constant (2004-05) prices during the year 2010-
11 in various sectors are as follows :

¾         agriculture, forestry and fishing 6.6 per cent;
¾         mining and quarrying 5.8 per cent;
¾         manufacturing 8.3 per cent;
¾         electricity, gas and water supply 5.7 per cent;
¾         construction 8.1 per cent;
¾         trade,  hotels,  transport  and  communication   10.3  per cent;

¾         financing, insurance, real estate and business services
9.9 per cent; and
¾         'community, social and personal services' 7.0 per cent.

          The Gross National Income (GNI) at factor cost at 2004-05 prices is estimated at `48,34,759 Crores during 2010-11, as against the previous years Quick Estimate of `44,64,854 Crores. The growth rate (% of increase over the previous year) in Gross National Income is estimated  to have risen by 8.3% during 2010-11, in comparison to the growth rate of 7.9 per cent in 2009-10.

          The  per  capita  net  national  income  in real  terms  (at  2004-05 prices)  during 2010-11 is estimated to have attained a level of
`35,917 as compared to the Quick Estimates for the year 2009-
10 of `33,731. The growth rate in per capita income is estimated at 6.5% during 2010-11 as against 6.1% during 2009-10.

          GDP  at  factor  cost  at  current  prices  in  the  year  2010-11  is estimated at `73,06,990 Crores, showing a growth rate of 19.1% over  the  Quick  Estimates  of  GDP  for  the  year  2009-10  of
`61,33,230 Crores.

          The  GNI  at  factor  cost  at  current  prices  is  now  estimated  at
`72,41,026  crore  during  2010-11,  as  compared  to  `60,95,230 crore during 2009-10, showing a rise of 18.8 per cent.

          The  per  capita  income  at  current  prices  during  2010-11  is estimated to have attained a level of `54,835 as compared to the Quick Estimates for the year 2009-10 of `46,492, showing a rise of 17.9 per cent.

          Private Final Consumption Expenditure (PFCE) in the domestic market  at current  prices  is estimated  at  `37,95,901  Crores  in
2009-10 as against `32,66,461  Crores in 2008-09. At constant
(2004-05) prices, the PFCE is estimated at `28,57,060 Crores in
2009-10 as against `26,59,152 Crores in 2008-09.

          Gross  domestic  saving  (GDS)  at current  prices  in 2009-10  is estimated  at  `22,07,423  crore  as  against  `17,98,347  crore  in
2008-09, constituting 33.7 per cent of GDP at market prices as against 32.2 per cent in the previous year.

          Gross   Domestic   Capital   Formation   at   current   prices   has increased  from  `19,27,107  Crores  in  2008-09  to  `23,89,213
Crores in 2009-10 and at constant (2004-05) prices, it increased
from `15,65,007 Crores in 2008-09 to `18,58,659 Crores in 2009-
10. The rate of gross capital formation at current prices is 36.5 per cent in 2009-10 as against 34.5 per cent in 2008-09. The rate of gross capital formation at constant (2004-05) prices is 38.2 per cent in 2009-10 as against 35.1 per cent in 2008-09.



3.22.   This chapter contains the following tables:

Table 3.1&3.2:National product at factor cost (at current prices) & (at
2004-05 prices)

Table 3.3 :    Gross domestic product by Economic Activity (at current prices).

Table 3.4 :    Gross domestic product by Economic Activity at constant
(2004-05) prices

Table 3.5 :    Net domestic  product   by Economic  Activity (at current prices)

Table 3.6 :    Net domestic product   by Economic Activity at constant
(2004-05) price

Table 3.7 :    Private   final  Consumption   Expenditure     in  Domestic
Market (at current prices)

Table 3.8 :    Private   Final   Consumption   Expenditure   in   Domestic
Market at constant (2004-05) prices

Table 3.9 :    Domestic Saving By Type of Institution (at current prices)

Table 3.10 :  Capital  Formation  by  Type  of  Assets  and  By  Type  of
Institutions (at current prices)

Table 3.11 :  Capital  Formation  by  Type  of  Assets  and  By  Type  of
Institutions at constant (2004-05) prices

Table 3.12 :  Performance of Public Sector (at current prices)

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