Trends ofNationalIncome

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 , hoteland restaurants , ownership of dwelling and otherservices 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 ofaverage productivity are carried forward andbackward . The year to year productivity soderived are then multiplied to arrive at theestimates 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

Forth Plan(1966-75)

5.7 3.2

Fifth Plan(1974-79)

4.4 4.7

The Target of the growth rate in 1&t three plans was set with respect to national income. In 4th plan it was Net Domestic product & there after it has been GDP(at factor cost) Actual growth rates are in terms of National Income(NNP at factor cost at 1000-200price)

Trends of National Income ( Percent Per annum) The Hindu

Growth rate Period Target Actual

Sixth Plan 5.2 5.5

Seventh Plan 5.0 5.6

Eighth Plan 5.6 6.5

Ninth Plan 6.5 5.5

Tenth Plan 8.0 7.8

1951-1980 3.6

1981-1990 5.6

1992-2007 6.1

The target growth 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

Primary of which 21.3

Agricultural 19.5

Mining & Quarrying 1.8

Secondary of which 22.2

Manufacturing Registered 8.6

Manufacturing unregistered 4.5

Tertiary of which 56.4

Transport & Communication 28.0& Trade of which

Railway 1.1

Trade & Hostel 16.9

Finance & real estate of which 14.4

Financing & Insurance 7.3

Community & Personal Services of which 14.0

Public administrative & defense 5.5

The share of Primary sector was 75 percent in the firstdecade of twentieth century came down to 21.6 percent in

2006-07

Sub Sector 1970-71 Price At 1980-92 At 1999-2000 Price

Agricultural& Allied

1960-61 1970-71

54.4 47.4

1981-82 1991-92

36.5 29.4

2006-07

19.5

Mining & Quarrying

0.9 0.9

1.4 1.5 1.8

Primary Sector 56.6 50.1 41.1 33.2 21.3

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

Period Total economy Agri. &Allied

Crops &Live stock

Nonagricultural

Pre Green Revaluation 1951-52 to 1967-68

3.7 2.5 2.7 4.9

Green revaluation 1968-69 to 1980-81

3.5 2.4 2.7 4.4

Wider tech. Dissemination period1981-82 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

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

1. The rate of Growth of Agriculture (1951-52 to 2006-07) about 2.7 percent is much less than other sector, but on an average higher than the growth rate of population 2.1 percent

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

Structural Change in Manufacturing 1. The share ofregisteredmanufacturing

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

1951-52 to 1970-

71

1971-72 to 1981-

82

1981-82 to 1991-

92

1991-92 to 2006-

07

0

2

4

6

8

10

12

14

6.3

9.3

12

8.69

5.1

7.7

4.5

Regestred ManufacturingUnregistred Manufacturing

Annual Compounds Growth rate of Index of Industrial Production (1951

to 1979) Use Base Classification

Building Industrial Base Industrial deceleration

Basic Goods1951-55 1955-60 1960-654.7 12.1 10.4

1965-1976 1974-796.6 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 durable 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 Goods8.7 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 73. 10.4 6.0

(a) Durables 14.3 11.6 14.8 10.8

(b) Non durable 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)

Use Base Classification

Pre reform (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) Durable

10.8 13.4 10.7 8.8 15.3 9.2

(b) Non durable

5.3 4.8 3.8 10.0 11.0 10.4

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 6.2percent and thereafter it increased toabout 7.4 percent in the year 2005-6

Change in Tertiary sector 1. The tertiary sector hasregistered significantgrowth, as its share inGDP has gone up fromone fourth to close to sixty percent

2. All the groups and subgroups of this sectorhave grown substantially

3. Among transport tradeand communication theshare of trade , hoteland restaurant has grown from 13 percentin 1960-61 to 16.9percent in 2006-07. Theshare of communication-IT enable services in tothe GDP has gone up to7 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 servicessector. First ;

The share of agriculture in GDP has declined byabout 25 percentage points, while industry andservices gained equally.

The share of industry has stabilized since 1990 andconsequently, the entire subsequent decline inthe share of agriculture in GDP has been pickedup 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 andtrade in India, unlike in the rest of the world. In1999-2000, services contributed around 24%of employment in India, in contrast to 30% inmiddle-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 forgenerating employment, e.g.construction ,transport and professionalservices, have grown slowly. Fastergrowing sectors, e.g. services andCommunications and financial businessservices, have a low potential foremployment generation.

In addition, employment elasticity hasdeclined in the fast growing services likefinancial and community services.

Some Implication software services have the highest productivity levels, followed by tale-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 ImplicationServices that have very high forward and backward linkage- transportation has slowgrowth rate. As it is the most crucialcomponent of Infrastructure – its slowgrowth hampers the growth of all sectors

Rashmi Banga :Critical issues in India’sService Led growth, Asian DevelopmentBank,INRM Policy Brief No. 2 .

Informal sector accounts for 58 percent of NDP

14.5% trade, hotel & restaurant

18.7% agricultural & allied activities

4.4% community, social & personal services

4.4% from construction

4.5% from manufacturing

5.1% transport & storage

6.5% finance, insurance & real estate & business services

Presented To Mr. Naresh Kumar Presented By Sanjeev Rollno. 2413

Thank You